How close is the next crisis?

A week after Reserve Bank of India governor D. Subbarao took almost everyone by surprise by cutting the key monetary policy rate by 50 basis points (bps), the bond market has hardly budged. On Tuesday afternoon, the benchmark 10-year bond was trading at around 15 basis points higher than its level the day before the policy announcement. The emerging consensus is that the Indian central bank does not have much firepower left in its armoury, perhaps another couple of 25 bps cuts at best.

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