MUMBAI: India’s central bank cut its benchmark interest rate by 25 basis points on Thursday, in a widely expected move to boost the economy, while keeping its monetary policy stance “neutral” despite subdued inflation.
The six-member monetary policy committee (MPC) cut the repo rate to 6.00 per cent as predicted by 57 of 67 analysts polled by Reuters last week. The reverse repo rate was reduced to 5.75 per cent.
Four out of six MPC members voted for a 25 basis points cut, while two called for the rates to remain unchanged. Five of them called for the policy stance to remain “neutral” while one MPC member voted for it to be changed to “accommodative.”
The RBI highlighted the need to boost domestic growth due to headwinds “on the global front.”
“The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish,” the RBI wrote in the policy statement.
The underperforming economy could hamper Prime Minister Narendra Modi’s prospects of getting re-elected for a second term in a looming general election.
While the central bank projected retail inflation at 3.8 per cent by January-March 2020 - within its target of 4 per cent - it also warned of the upside risks to price pressures if food and fuel prices rose abruptly, or if fiscal deficits overshot targets.
Annual consumer inflation was just 2.57 per cent in February following five months of deflation in food prices.
The RBI lowered its economic growth forecast to 7.2 per cent for the 2019/20 April-March fiscal year, from the February view of 7.4 per cent.
Sluggish private investment and a weakening rural economy pulled India’s economic growth down to 6.6 per cent in the December quarter, its slowest in five quarters, while the unemployment rate hit multi-decades high.
Voting starts next week, but the result will only be known on May 23 and uncertainty over which party will lead the next government has complicated the Reserve Bank of India’s task. It cannot be sure of the government’s fiscal plans, as the major parties made promises for heavy spending during their election campaigns.
“Should there be a fiscal slippage...this could crowd out private investment, impact potential output, and result in higher inflation,” the RBI said in a separate monetary policy report.
India’s financial markets were little changed after the policy decision.
The 10-year benchmark bond yield rose to 7.46 per cent from 7.37 per cent before the decision and the rupee strengthened to 68.78 to the dollar from 68.82 before.
The broader NSE stock index was down 0.18 per cent at 11,622.35 points.
Conventional wisdom has it that the current polls will not produce a clear-cut result as in 2014. The reason is that there is no definite trend for or against any party at the national level although such tendencies are there in some states such as Tamil Nadu.
As India goes through a general election, the outcome of which may determine its future as a secular democracy, unseemly developments have cast long shadows over two constitutional institutions.
In his first public rally after announcement of dates for the eight-phase Assembly polls, Prime Minister Narendra Modi on Sunday went full-throttle against the Mamata Banerjee-led Trinamool Congress government in West Bengal.
Mohamed Al Khaja, Ambassador of the United Arab Emirates to the State of Israel, and Eli Cohen, Minister of Foreign Affairs of Israel,
Al Ansari Financial Services on Monday announced it has set the final offer price for its IPO at Dhs1.03 per share, at the top of the previously announced price range.
Airports in the Middle East will need to invest $151 billion in capacity expansion as the global air passenger demand is expected to increase