Wed, Jun 03, 2015 - Page 15 News List

India cuts interest rates for third time this year


An fruit vendor waits for customers at a market in Mumbai, India, yesterday.

Photo: AFP

India’s central bank yesterday cut interest rates for the third time this year and downplayed recent growth in Asia’s third-largest economy, saying investment remained weak.

The Reserve Bank of India (RBI) lowered the benchmark repo rate — the level at which it lends to commercial banks — by 25 basis points to 7.25 percent with immediate effect.

It was in line with analysts’ expectations and means the RBI has now lopped 75 basis points from borrowing rates this year.

RBI Governor Raghuram Rajan said the cut was necessary to boost investment and consumer demand in the economy, which he said was still not firing on all cylinders despite growth picking up pace.

“We still believe the economy is below potential. Investment is still tepid and demand is weak,” he told reporters after the bank’s monetary policy meeting in Mumbai.

India’s economy grew 7.5 percent in the first three months of the year, overtaking China. The government posted annual growth of 7.3 percent for the financial year ending on March 31, up from 6.8 percent the previous year, but Rajan suggested firm evidence of an economic recovery was far from clear.

“With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today,” he wrote in the statement.

“This policy stance is neither conservative nor aggressive. It is just appropriate given the conditions,” he added.

Rajan has made controlling inflation a priority, setting a target of bringing it consistently below six percent by January next year and to four percent for the financial year starting on April 1 next year.

In April, consumer inflation fell to a four-month low of 4.87 percent, well within the RBI’s target range.

With the monsoon due to start imminently, the RBI took the unusual step of urging the government to ensure there were adequate food supplies to keep prices under check.

“Strong food policy and management will be important to help keep inflation and inflationary expectations contained over the near term,” the RBI said in its statement.

“How the monsoon emerges in coming months is the biggest uncertainty right now,” Rajan said.

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