Euro zone accelerates rate cuts... - Views on News from Equitymaster

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Euro zone accelerates rate cuts...

Dec 5, 2008

Governments have tried their best to revive credit markets in the past few weeks. Huge rescue packages have been announced. But the response has been lukewarm at best. In another bid to stimulate the credit markets, the European Central Bank (ECB) cut interest rates yesterday. As per the IHT, the ECB has cut its benchmark interest rate by 0.75% to 2.5%. This is the largest cut by the ECB in its entire history and provides the signal that it is worried about the magnitude of the economic downturn. What is even more worrying is that bank did not rule out further cuts in the future. In fact, the ECB expects the recession to continue beyond 1HCY09.

The Bank of England also cut rates by 1%, bringing it down to 2%, the lowest in half a century. It may be noted that financial services, which has been at the centre of the crisis, is one of Englandís main industries. Sweden, New Zealand and Indonesia have also cut rates.

How is Indian IT responding?
What will be the impact of the global financial turmoil on the Indian IT industry? This is the billion dollar question often asked. There are those who think that the Indian IT industry will suffer because much of its revenue has traditionally come from clients from the financial sector, especially those based in US. Then there are those who believe the industry will actually benefit from a slowdown. Clients will face severe cost pressures and will ship out even more jobs than earlier.

There are indications that the first scenario is playing out. As per reports in several leading business dailies, many IT companies are now increasing working hours, freezing salaries, easing exit policies and even laying off existing employees. Targets for fresh recruitment have been cut. As per the New York Times, the reason Indian IT companies might be vulnerable as compared to their global counterparts is because they handle the front and back office functions. They have not graduated to the point where they could help develop new products, sharpen marketing techniques and evolve corporate strategies for their clients.

  

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