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India’s central bank cut its key lending rate, citing cooling global growth!

India s central bank cut its key lending rate citing cooling global growth  pardesi news 1476096666

In an effort to boost the economy India’s central bank recently cut a key interest rate to its lowest level in over five years.

In the first-ever decision by the recently appointed monetary-policy committee headed by the new governor, Urjit Patel, the Reserve Bank of India (RBI) cut its repurchase rate by a quarter percentage point to 6.25% from 6.50%, the lowest in over five years. Importantly, several economists had predicted the RBI would leave rates unchanged.

“Global growth has been slowing more than anticipated through 2016 so far, with weak investment and trade damping aggregate demand”, the committee said. “Meanwhile, risks in the form of Brexit, banking stress in Europe, rebalancing of debt-fuelled growth in China, rising protectionism and diminishing confidence in monetary policy have slanted the outlook to the downside”.  While Patel’s predecessor was in sole charge of rate setting, the latest cut was decided by the newly formed policy committee. However, the RBI did not say how members of the six-strong committee voted.

Mr Patel replaced Raghuram Rajan who announced he was stepping down earlier this year. He is known to take a tough line on inflation, which is still one of the big worries in the Indian economy.

Shubhada Rao, chief economist of Yes Bank in Mumbai, has hailed  the cut was "along expected lines".

India is one of the fastest expanding economies in the world, even though growth eased back to an annual pace of 7.1% in the March to June quarter, down from 7.9% in the previous three months. Moreover, inflation is expected to keep falling in the coming months, following a good monsoon season that brought down food prices.

Along with adopting a committee to make decisions, the RBI has narrowed its policy focus. Many also see this as a signal Patel wants to keep a low profile unlike Raghuram Rajan who was famous for his frank interactions and statements. 

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Patrick Callahan

Pardesi News Reporter

Pardesi News Reporter

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