The monetary policy committee (MPC) of the Reserve Bank of India cut the repo rate by 25 basis points to 6.25 percent, as predicted by only 21 of 65 analysts polled by Reuters.
MUMBAI: India’s central bank delivered a back-to- back interest rate cut to support a sluggish economy a week before elections kick off.
The repurchase rate was lowered by 25 basis points to 6 percent, a decision predicted by all but two of the 47 economists surveyed by Bloomberg News.
The six-member Monetary Policy Committee voted 5-1 to keep the stance neutral, while voting 4-2 on the rate decision.
“The domestic economy is facing headwinds, especially on the global front,” the central bank said in a statement in Mumbai on Thursday.
“The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.”
Thursday’s cut reverses the 50 basis points of increases delivered by the Reserve Bank of India last year. It also marks the most aggressive easing by any major emerging market central bank in 2019 amid a slowdown in inflation and U.S. Federal Reserve’s shift to a more dovish policy stance.
While inflation picked up to 2.6 percent in February, it remains well below the RBI’s medium-term target of 4 percent. That’s given Governor Shaktikanta Das room to support economic growth after it hit a six-quarter low in the three months ended December.
The RBI further cut the forecast for consumer prices, seeing inflation in a range of 2.9 percent to 3 percent during April- September compared with 3.2 percent to 3.4 percent forecast in February.
It also lowered economic growth projection for the year started April 1 to 7.2 percent from 7.4 percent seen previously, amid signs of weakening domestic investment activity and waning global demand.
The growth slowdown is a setback for Prime Minister Narendra Modi, who came to power in 2014 on the back of pledges to reform the economy and create 10 million jobs each year. Modi’s seeking a second term in office in elections starting April 11.
Uncertainty about the poll outcome has fueled worries about policy continuity in Asia’s third-largest economy, with businesses curbing investments in an environment of mounting global risks and sluggish domestic demand. - Bloomberg
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