The Reserve Bank of India (RBI) has left interest rates unchanged for the first time since March of 2010 as reported by Bloomberg. The RBI had previously raised rates 13 consecutive times to combat inflation caused by close to double digit economic growth.
Now it appears the risk has tilted away from inflation to a potential stalling in the Indian economy. Recent events including the plunge in the value of the rupee to all time lows, lower monthly food inflation numbers and data that showing industrial production is slowing in India likely caused the RBI to change their stance. “The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement to Bloomberg today.
In market action both the rupee and India bonds rallied significantly, however Indian equities continued their downward slope as concern over India’s economic growth prospects weighed on investors. Indian markets are now very close to their 52 week lows. The two largest India ETFs, WisdomTree’s EPI and PowerShares PIN are down over 35% in 2011.
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