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Old 04-18-2012, 07:28 AM   #1
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India joining the currency wars?

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On Tuesday, the Indian Central Bank surprised everyone by lowering interest rates by a full half-percent, which was more than expected. India's inflation rate is quite high at nearly 7% per annum. The Central Bank seems to be ignoring this and concentrating on growth even in the face of higher inflation. While some commentators have interpreted the central bank's comments about inflation to indicate that this is a one-off cut, I doubt it. It would be rare and unusual for a central bank to do a "shock and awe" rate cut like this one without intending to do more of them.

This may be a pattern many other emerging market central banks will follow. All of them are very worried about bolstering local economies against the turmoil in Europe, which is the biggest export market in the world. Other central banks are likely to lower rates in spite of high inflation. The natural response of Indians and others all over the world will be the traditional one. They will probably trade in their rupees, yuan, pesos and so on for hard currency like gold and silver as they have always done. Nowadays, in India at least, they'll also trade them in for platinum.

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