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Devendra Pant, a director at Fitch Ratings in New Delhi, comments after India’s central bank reduced interest rates for the first time since 2009. Pant spoke today in a telephone interview.
Governor Duvvuri Subbarao lowered the repurchase rate to 8 percent from 8.5 percent, the Reserve Bank of India said in a statement in Mumbai today. The outcome was predicted by three of 25 economists in a Bloomberg News survey. Seventeen expected a 0.25 percentage-point cut and the rest predicted no change.
On growth prospects:
“At present, any kind of fiscal prudence can only come from high tax revenue, which will happen if growth is supported. By lowering the rates by 0.5 percentage points, the central bank has indicated it’s hoping investments will come back in the form of capital expenditure by the corporate sector as well as the regular and pent-up demand in all sectors impacted by higher rates like automobiles, homes.”
“While current core inflation has moderated, it is still a concern. Food inflation is high and that can only be controlled if the supply side is augmented. You can’t contain prices of poultry products or pulses by raising rates.”
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