India cuts interest rates for the first time in five years
India’s central bank has cut interest rates for the first time in nearly five years to combat Asia’s third largest economy.
The Reserve Bank of India (RBI) reduced its repo rate from 6.5% to 6.25% in accordance with the expectations of many economists.
The repo rate is the level on which the central bank lends to commercial banks.
The latest cuts occur when India’s GDP growth slows down by four years to 6.7%.
RBI Governor Sanjay Malhotra said that the bank is keeping its policy stance “neutral”, which will open more spaces to support development, indicate further rate cuts.
The world’s fastest growing major economy has an increase in investment and urban consumption. Corporate profits have also shrunk in the first half of this financial year.
But modeling inflation, will help in increasing rural demand and increase in good agricultural production, Mr. Malhotra said.
Rate cuts may be less mortgage and credit card interest rates as well as cheaper lending costs for companies.
The decrease in the rate of the central bank follows a series of measures declared earlier, including an injection of $ 18BN (£ 14.48BN) in the domestic banking system to reduce cash reduction in the economy.
It also cut the cash reserve ratio – or the reserve commercial banks need to be maintained with the RBI – half a percent in December.
The RBI rate moves the $ 12BN tax deduction of the Union Budget for the struggling middle class.
Despite this, the objective of Shri Modi’s government is to curb expenditure to reduce budget deficit. With limited rooms for fiscal stimulation, economists hope that the central bank has cut a rate of 0.5% -1% to support development, according to various estimates.
However, US President Donald Trump’s tariff war due to global uncertainty, a outflow of foreign investor money and a depreciation currency – which can weaken more weakened when the rates can be reduced – has complicated RBI’s work.
The Indian rupee has been trading near record climb due to the outflow of foreign investors from stock markets in recent months.
