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This is an archive article published on December 8, 2008

RBI’s rate cuts not to stem slowdown: Citi

RBI's rate cuts are positive for economy but are unlikely to reverse slowdown, Citigroup said.

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The Reserve Bank of India’s weekend rate cuts are positive for the economy but are unlikely to reverse the slowdown, Citigroup said on Monday.

However, key rates will continue to ease in the coming months due to the fall in inflation, Citi said in a note.

Given that liquidity conditions are currently comfortable, the rate cuts will eventually result in a flow of credit to the real economy, Rohini Malkani, economist at Citi, wrote.

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The government’s fiscal stimulus package, although a positive, will further raise deficit, according to Citi.

The Reserve Bank of India on Saturday cut both its key short-term rates by 100 basis points each to boost economic growth in the wake of a global credit crisis and recession in some major economies.

“While Indian policy makers have been taking co-coordinated policy action, incremental data both on the global and domestic front continue to be worse than anticipated”, Citi said.

The government on Sunday unveiled a $4 billion stimulus package of extra spending for rest of this fiscal year. The government will also issue an extra $9 billion of bonds by Feb. 20, slightly higher than market expectations of $6-$8 billion.

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