India interest rates on hold as bank reserve ratio cut

A vendor selling vegetables in India Rising costs of food have seen India's central bank resist calls for cutting interest rates

Related Stories

India's central bank has kept interest rates unchanged, despite signs that the country's economy is being hit by a global slowdown.

However, in an effort to boost lending, it cut the amount of money that banks need to keep in reserve.

It said cutting the cash reserve ratio to 4.25% from 4.5% would inject 175bn rupees ($3.2bn; £2bn) into the market.

Critics have called for more stimulus measures, and the Indian rupee and stocks fell on the news.

"There was definitely lot of expectations in the markets for a rate cut, but people will have to wait for some more time," said Srividhya Rajesh, fund manager at Sundaram Mutual Fund.

"It is disappointing for the markets."

'Doesn't make sense'

This is the second time in as many months that India's central bank, the Reserve Bank of India (RBI), has cut its cash reserve ratio.

Start Quote

Banks will be pressurised to lend, but buyers might not feel confident about spending after borrowing at high rates”

End Quote Deven Choksey KR Choksey

The latest move comes ahead of the festival of Diwali in November, which is traditionally associated with a jump in consumer spending.

People buy new products raging from electronics to cars and jewellery on auspicious days during the festival season.

The hope is that increased liquidity may spur consumer demand even further and help to boost growth.

However, some analysts were sceptical over whether the move would have the desired effect, not least because the cost of borrowing continues to remain high.

The RBI left its key interest rate unchanged at 8%.

"If a CRR cut is not backed by a rate cut it doesn't make sense," said Deven Choksey chief executive of KR Choksey, a Mumbai-based brokerage firm.

"Banks will be pressurised to lend, but buyers might not feel confident about spending after borrowing at high rates."

More on This Story

Related Stories

More Business stories

RSS

Features & Analysis

Elsewhere on the BBC

  • FutureThe future is now

    Get the latest updates and biggest ideas from BBC Future’s World-Changing Ideas Summit

Programmes

  • A virtual girlfriendClick Watch

    Using the latest tech to find friends on a night out and meet a virtual girlfriend

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.