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India lowers interest rate after economic slowdown
India’s central bank lowered its benchmark interest rate to a six-and-a-half-year low of 6 per cent on Wednesday, down from 6.25 per cent, after a drop in consumer prices and an overall slowdown in economic growth.
The decision by the Reserve Bank of India’s Monetary Policy Committee, by a 4-2 vote, to cut the repo rate by 25 basis points — while maintaining a neutral policy stance — was widely forecast, especially after inflation fell to a five-year low of 1.25 per cent in the 12 months to June.
“Inflation, excluding food and fuel, which has hitherto been sticky has fallen significantly over the past three months,” Urijit Patel, the RBI governor, told reporters after the decision was announced. “These factors opened some space.”
Indian business groups have been clamouring for lower interest rates as they grapple with a slowdown in economic momentum. India’s gross domestic product grew just 6.1 per cent in the January to March quarter — its slowest pace since late 2014 — as the country reeled from Prime Minister Narendra Modi’s November decision to prohibit the use of 86 per cent of the country’s cash.
The introduction of the Goods and Services Tax at the start of last month has also had a damping effect on the economy, as business prepares for the transition by short-term cuts in production.
The RBI noted that a “weakening of the industrial performance” from April to June, when output of consumer durables and capital goods both contracted, pointed to “continuing retrenchment of capital formation in the economy”.
It also noted that the announcement of investment projects in the quarter fell to a 12-year low.
India’s central bank lowered its benchmark interest rate to a six-and-a-half-year low of 6 per cent on Wednesday, down from 6.25 per cent, after a drop in consumer prices and an overall slowdown in economic growth.
The decision by the Reserve Bank of India’s Monetary Policy Committee, by a 4-2 vote, to cut the repo rate by 25 basis points — while maintaining a neutral policy stance — was widely forecast, especially after inflation fell to a five-year low of 1.25 per cent in the 12 months to June.
“Inflation, excluding food and fuel, which has hitherto been sticky has fallen significantly over the past three months,” Urijit Patel, the RBI governor, told reporters after the decision was announced. “These factors opened some space.”
Indian business groups have been clamouring for lower interest rates as they grapple with a slowdown in economic momentum. India’s gross domestic product grew just 6.1 per cent in the January to March quarter — its slowest pace since late 2014 — as the country reeled from Prime Minister Narendra Modi’s November decision to prohibit the use of 86 per cent of the country’s cash.
The introduction of the Goods and Services Tax at the start of last month has also had a damping effect on the economy, as business prepares for the transition by short-term cuts in production.
The RBI noted that a “weakening of the industrial performance” from April to June, when output of consumer durables and capital goods both contracted, pointed to “continuing retrenchment of capital formation in the economy”.
It also noted that the announcement of investment projects in the quarter fell to a 12-year low.
