Interest Rate Cuts: US, UK and India

It seems to be an almost certainty, that there will be further rate cuts in US, UK and India. There are strong signals from Fed, Bank of England as well as Reserve Bank of India, that there may be interest rate cuts in the coming few weeks.

Yesterday, it was Ben Bernanke, The Fe Chairman, who set the outlook for the coming year, and clearly hinting that the Fed is very open to cut the rates further to help the struggling US economy recover from the so called fear of recession, which some experts believe is unavoidable. How bad the US economy is is clear from the measures taken by US government recently – offering a tax rebate, Warren Buffet making an offer to reinsure municipal bonds & Fed reveals plans to help mortgage defaulters - Just to name a few.

In UK, we have the same story. The Bank of England governor has already expressed deep concerns over the falling standards of living in UK due to substantial price rise in food and fuel costs. Reuters yesterday reported that there is a strong possibility of 2 more rate cuts by Bank of England to bring some clam to the struggling UK economy.

In the emerging markets, India’s Finance Minister and Reserve Bank of India Governor is giving strong signals for a rate cut. The expectations are that in March, there will be some relief from the growing interest rates. Though in a recent statement, the RBI governor had left the field open to the banks to battle it out and many banks in India have deducted their rates for house loan, car loan, etc.

But the latest signal is the fuels price hike by the Indian government. A rise of 4% in petrol (Rs. 2) is the strongest signal, that analysts believe, is sufficient enough to indicate the government is seriously considering a rate cut. Let’s see what goes on – expectations for rate cut are in March.

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