The inflation rate eased to a nearly six-year low of 8.9 per cent for the week ended November 8, from 8.98 per cent for the week before raising hopes of fresh round of interest rate cut over the next few days. It could bring cheer to corporations grappling with options to meet capital requirements for planned and current projects. Inflation slipped to single-digit levels after 21 weeks and hitting 12.91 per cent in August.
Earlier this week, the Reserve Bank of India (RBI) Governor D Subbarao met Finance Minister P Chidambaram to discuss steps to make more funds available to the corporations. The RBI has cut the cash reserve ratio — proportion of money banks have to park with the central bank — by 3.5 percentage points to 5.5 per cent releasing about Rs 1,40,000 crore into the system. The repo rate — the rate at which banks borrow from the RBI — has also been cut by 1.5 percentage points to 7.5 per cent.
“Given the increasing downside risks to the growth momentum coupled with tight liquidity conditions, we expect RBI to cut CRR and repo rate by 50 basis points each in near future,” said Kaushal Sampat, chief operating officer of data services and consulting firm Dun and Bradstreet.
On Monday, Prime Minister Manmohan Singh conferred for more than one-and-a-half hours with key macroeconomic managers, including Chidambaram, Commerce and Industry Minister Kamal Nath, Subbarao and Planning Commission Deputy Chairperson Montek Singh Ahluwalia and other senior officials on the current economic downturn and shrinking demand for India’s exports. India’s exports are projected to decline by 15 per cent in October this fiscal, for the first time in any month in five years, and likely to miss the $200 billion target for 2008-09.