RBI Cuts Key Rates for Fifth Time

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Mar. 5 – The reserve bank of India cut the repurchase rate, its lending rate to 5 percent, and its reverse repurchase rate to 3.5 percent, dropping both rates by half a percentage point. Exports in the US$1.2 trillion economy have fallen to an all time low since June 1998 when they fell 16.1 percent from the previous year. The Indian government said it made the unexpected move when the economy slowed beyond their expectations.

This is the fifth time India’s apex bank has cut its benchmark rates since October last year. The RBI cut repurchase rates in order to increase liquidity in the market while it cut its reverse repurchase rate so that commercial banks would not park their money with the RBI. The government expects the economy to grow at a six year low of 7.1 during this fiscal year ending March.

"India's growth trajectory has been impacted both by the financial crisis and the follow-on of global economic downturn," the RBI told the Wall street Journal. "This impact has turned out to be deeper and wider than anticipated."

India’s inflation fell to a 14 month low of 3.36 percent last week, and the rupee rose to an all time high to close at Rs52 Vs the dollar, both stoking expecations of another interest rate cut.