Sat, Oct 05, 2019 - Page 10 News List

Indian central bank cuts key rate, lowers forecast

Bloomberg

The Reserve Bank of India yesterday cut its key interest rate for a fifth straight time this year, moving aggressively to revive economic growth as the banking system faces new stresses.

The central bank lowered its benchmark repurchase rate by 25 basis points to 5.15 percent. A majority of the 39 economists in a Bloomberg survey predicted the move, while the rest forecast cuts ranging from 15 basis points to 40 basis points.

The Indian Monetary Policy Committee is to “continue with the accomodative stance as long as it is necessary to revive growth while ensuring inflation remains within the target,” Reserve Bank of India Governor Shaktikanta Das told reporters in Mumbai.

The entire six-member committee voted for a rate cut. One member voted for a 40-basis-point cut, while the others opted for a quarter-point easing. The RBI retained its accommodative policy stance.

Das last month alluded to the chance of more easing, given concerns about economic growth. The bank yesterday lowered its full-year growth forecast for a fourth time, to 6.1 percent from 6.9 percent previously.

The benchmark stock index and the rupee pared gains after the decision, while India’s 10-year bonds fell, as some investors had expected a bigger cut.

The market reaction reflects “over-exuberance about bigger rate cuts getting dented,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai.

Central banks around the world are loosening monetary policy to offset a global slowdown and the US-China trade dispute.

Australia cut rates earlier this week for the third time this year, while the Philippines and Indonesia eased policy last month.

India’s economy grew 5 percent in the quarter ended June, the weakest pace in six years. Leading indicators tracked by Bloomberg News suggest fairly subdued investment and consumption activity in August.

Yesterday’s cut takes the benchmark rate to the lowest in almost a decade and follows a number of recent fiscal steps taken by the Indian government to spur growth, including a surprise US$20 billion reduction in corporate taxes.

“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” the central bank said.

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