well im in favor of reduction in interest rate


Interest rates control the flow of money in the economy. High interest rates curb inflation, but also slow down the economy. Low interest rates stimulate the economy, but could lead to inflation. Therefore, you need to know not only whether rates are increasing or decreasing, but what other economic indicators are saying.

* If interest rates are increasing and the Consumer Price Index (CPI) is decreasing, this means the economy is not overheating, which is good.

* But, if rates are increasing and GDP is decreasing, the economy is slowing too much, which could lead to recession.

* If rates are decreasing and GDP is increasing, the economy is speeding up, and that is good.

* But, if rates are decreasing and the CPI is increasing, the economy is headed towards inflation.

now here is the data

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011 14.19 12.91
2010 13.68 13.04 12.91 13.26 13.07 12.69 12.34 12.79 13.77 14.17 15.48 15.46
2009 20.52 21.07 19.07 17.19 14.39 13.14 11.17 10.69 10.12 8.87 10.51 10.52
2008 11.86 11.25 14.12 17.21 19.27 21.53 24.33 25.33 23.91 25.00 24.68 23.34

Although inflation rate was recorded low in feb,2011 but we cant predict the same behavior in future, At the same time we need to consider other indicators i.e slow growth rate ( 2.0 %), unemployment 5.50 % etc...

Interest rates affect the economy slowly. If we try to control inflation by interest rates, the result will consume enough time to sweep out all investors and will change investment behavior of people.

As u said "Secondly, the inflation nature is cost push, so it cannot be controlled by reducing Investment"
so if this policy is not going to control inflation, why we are reducing investment?


regards,
Eve's Daughter