China moved to ease policy this week via a reserve ratio cut for banks, effectively starting to reverse a tightening cycle that’s been in place since last January. Later the same day, Brazil’s central bank cut interest rates by 50 basis points for the third time in a row. Both countries are expected to continue easing policy as the global economic downturn bites. And last week Russia signalled that rate cuts could be on the way.
That makes three of the four members of the so-called BRIC group of the biggest emerging economies. Indonesia, the country some believe should be included in the BRIC group, has also been cutting rates. That leaves India, the fourth leg of the BRICs, the quartet whose name was coined by Goldman Sachs banker Jim O’Neill ten years ago this week. India could use a rate cut for sure. Data this week showed growth slowing to 6.9 percent in the three months to September — the slowest since September 2009. Factory output slowed to a 32-month low last month, feeling the effects of the global malaise as well as 375 basis points in rate increases since last spring. No wonder Indian stocks, down 20 percent this year, are the worst performing of the four BRIC markets.
But unlike the other BRICs, a rate cut is a luxury India cannot afford now — inflation is still running close to double digits. “The Reserve Bank of India (RBI) is the odd guy out due to stubbornly high inflation of near 10 percent,” writes Commerzbank analyst Charlie Lay.