RBI's Price Cut may Lead To Risk And Benefits To The Indian Economy

By SiliconIndia   |   Wednesday, November 26, 2014
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BANGALORE: The RBI, which has been keeping rates at high inflation earlier, wants to reduce the price cuts reports rediff.com

Reserve Bank of India to track its counterpart in Beijing and to start decreasing interest rates. Thought it would carry few risks and benefits to the Indian economy.

The Chinese central bank cut down the lending rates by 40 basis points to 5.6 percent and by decreasing the deposit rate by 25 basis points to 2.75 percent. The lower rates to give borrowers some relief.

India is short of investment, from coal, power to roads and housing. Total credit in the private non-financial sector was about 50 percent of gross domestic product, when compared with 175 percent in China. Thus, the Indian economy is weighed down by severe constraints, which makes it vulnerable to high inflation and large trade scarcity. Consumer prices in India are now rising at a 5.5 percent rate.

India may even soon witness faster reduction in prices if Iran and global powers manage to thrash out a much-awaited nuclear agreement.

The exchange rates of commodity-producing countries like Australia, New Zealand, South Africa, Canada and Chile are still declining.

Meanwhile, both the Indian government and the private sector badly want the RBI to lower borrowing costs.

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