India’s central bank yesterday cut interest rates, delivering a shot in the arm to Indian Prime Minister Narendra Modi ahead of a marathon general election, which starts next week.
The second snip in borrowing costs this year in the Asian giant comes as Modi seeks to convince voters that they should re-elect him, despite question marks over his economic record.
The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would be reduced by 25 basis points to 6 percent.
It was the second consecutive cut under RBI Governor Shaktikanta Das, a Modi ally who was appointed in December last year after his predecessor, Urjit Patel, quit following a spat with the government over alleged interference.
The bank said the time was ripe for a cut with inflation well below its target of 4 percent. The cut is expected to boost consumer sentiment going into the polls.
“The output gap remains negative and the domestic economy is facing headwinds, especially on the global front,” the bank said in a statement.
“The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish,” it said.
Das has now reversed two rate hikes brought in by Patel last year. The government was believed to be unhappy with the RBI under Patel’s tenure over its apparent reluctance to cut rates to stimulate the economy.
He quit at the end of last year, reportedly amid pressure from the Indian Ministry of Finance to enact policies that would help spur growth ahead of the elections, which run from Thursday next week to May 19.
The opposition Congress Party accuses Modi’s Bharatiya Janata Party-led administration of interfering with the bank’s functioning and has pledged in its manifesto to respect the RBI’s independence.
Modi has announced a number of high-profile economic policies during his tenure, including the introduction of a new single tax on goods and a currency ban.
However, economic growth is slowing. GDP expansion reduced to 6.6 percent in the final quarter of last year, a slump from 7.1 percent in the three months to the end of the previous quarter.
That was down from 8.2 percent about a year earlier.
Modi’s pledge to create millions of jobs has also come under scrutiny. A government report leaked in February showed unemployment at a 45-year-high of 6.1 percent in 2017 and last year.
India’s general elections are to be the largest democratic exercise of its kind ever held, with about 900 million voters eligible to cast ballots.
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