Reserve Bank of India Also Cut Rates Sharply Last Week

December 7, 2008

The Reserve Bank of India cut its repo rate for a third time since October on Saturday and and also reduced its reverse repo rate. Both were cut by 100 basis points to 6.5% and 5.0%, respectively. India is complementing these moves with fiscal stimulus.

Several other central banks previously made large reductions in their benchmark interest rates. Sweden’s Riksbank cut its repo by 175 basis points to 2.0%. The Reserve Bank of of New Zealand reduced its cash rate by 150 basis points to a 5-year low of 5.0%. The Reserve Bank of Australia cut its cash rate by 100 basis points to a 6-1/2 year low of 4.25%. After reducing its Bank Rate also by 100 basis points, the Bank of England benchmark of 2.0% is at its lowest rate since 1951. Such has never been lower than 2% in records going back to the late 17th century. The ECB cut of 75 basis points was its largest ever, and the 2.5% refinancing rate is at its lowest level since mid-2006. The Bank of Thailand implemented its first cut in 16 months, a 100-basis point move to 3.75%. Bank Indonesia only eased 25 basis points to 9.25%, and although the Bank of Japan left its target rate at 0.3%, the range of acceptable corporate collateral for borrowings from that bank was expanded. It was an historic week all in all for the number of outsized central bank rate cuts.


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