RBI set to cut rates further

RBI is set to cut its short-term borrowing and lending rate further by about 100 basis points by March, 2009 as it steps up its damage control efforts for the Indian economy under jolting effects of the global crisis, ICICI securities said .
A Prasanna and Abhishek Panda, the unit's economists, pointed out to the series of recent weak data which indicates that external demand has severely collapsed and tighter financial conditions are not helping the cause either.

"All said, a slowdown is set in stone and the Reserve Bank of India(RBI) may have to move quickly to limit the downside risks and to restore confidence among domestic and foreign investors." They went on to add that the exports in October fell by 15% and the commercial vehicle sales fell by 36%, its biggest fall in a decade.
It must be taken in account that RBI has already cut its Repo Rate by 150 basis points and reduced banks' CRR by 350 basis points since October in order to infuse the cash in indian market which is facing one of the worst liquidity crunch.
"We see a reasonable probability of a fragmented electorate resulting in a weak mandate leading to delays in critical reform measures that may be required to boost the economy in the short- as well medium-term," they said.ICICI said while the exact timing of the cut was difficult to predict, it may even reduce both its lending and borrowing rates by 50 basis points in November.
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