Sunday, 2 November 2008

India cuts interest rate, China calls for demand boost

India eased monetary policy on Saturday. AFP/CNA reports:

The Reserve Bank of India, citing "unsettled" financial conditions, reduced its key short-term lending rate, the repo, by 50 basis points to ease a credit crunch and inject liquidity into financial markets. The repo is the rate at which it lends funds to commercial banks...

As part of a triple-prong move, the bank also cut the amount commercial banks must keep in reserve, easing the cash reserve ratio to 6.5 per cent from 5.5 per cent -- pumping billions of dollars into the financial system.

And in another stimulus step, it cut the statutory reserve ratio -- the amount banks must hold in government securities -- to 24 per cent from 25 per cent to boost liquidity...

The steps came after India's inflation rate earlier in the week fell below 11 per cent for the first time since May to hit 10.68 per cent. Analysts forecast it will fall to single digits by November or December as a result of falling global commodity prices and slowing economic growth.

The other Asian giant is also trying to boost its economy. From AFP/CNA:

China's President Hu Jintao has called for a boost in domestic demand to maintain the nation's economic growth in the face of the global financial crisis, state media reported Saturday.

Hu said that governments at all levels should "strive to expand domestic demand, especially consumer demand," as he visited farmers in the northern province of Shaanxi, the official People's Daily newspaper reported.

There was evidence yesterday that China's economy is slowing dramatically. From Bloomberg:

China's manufacturing contracted as the worst financial crisis since the Great Depression eroded export demand.

The Purchasing Managers' Index fell to a seasonally adjusted 44.6 last month from 51.2 in September, the China Federation of Logistics and Purchasing said today in an e-mailed statement. That was the lowest since the gauge was launched in July 2005. A reading below 50 reflects a contraction, above 50 an expansion.

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