Palaniappan Chidambaram, the Finance Minister of India, said yesterday that the latest emergency rate cut by the Fed will probably influence the next interest rate decision by the Reserve Bank of India.
The difference between the Indian and U.S. interest rates, even before the last Fed’s cut, has been adding to the demand for the rupees and Indian bonds. After the cut, rupee’s appreciation began to accelerate, adding pressure to the Indian economy.
Palaniappan Chidambaram has said during the interview at the World Economic Forum in Davos:
The interest rate differential between India and the U.S. has widened. That’s something the central bank will take on board, I suppose, before it decides its policy.
Current inflation rate in India, which is below the Reserve Bank’s target level, allows a reducing decision on the interest rate. And market participants are already expecting the cut, which would help to boost the financial market growth even as the global volatility rises.
If on 29th of January Reserve Bank of India will decrease the interest rates, it will be first such step in almost four years during which the rates were increased nine times.
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