India makes second unscheduled rate cut
Disinflation — and in some cases deflation — stalking the world has pushed scores of central bankers including those in Europe and China into easing mode even as, conversely, the US Federal Reserve prepares to start raising rates.
Raghuram Rajan, governor of the Reserve Bank of India, said cheaper vegetables and moderating inflation excluding food and fuel — now at a new low — had prompted the 25 basis-point cut in the repo rate.
Analysts also viewed the move as a vote of confidence in Saturday’s budget, designed to slow the pace of fiscal consolidation while stepping up public spending in infrastructure.
Finance minister Arun Jaitley’s first full budget since Narendra Modi’s government came to power in May was welcomed by investors, with one analyst describing it as “a fine balancing act between fiscal consolidation and creating enabling conditions for growth and job creation”.
Mr Rajan paved the way for cuts in December when he told markets he would not hesitate to act, “including outside the policy review cycle”.
He followed through with an unscheduled rate cut on January 15 but then held interest rates steady at the RBI’s February 3 meeting.
Announcing the latest cut on Wednesday, Mr Rajan said the need to act outside the policy review cycle had been prompted by two factors.
“First, while the next bi-monthly policy statement will be issued on April 7, the still weak state of certain sectors of the economy as well as the global trend towards easing suggests that any policy action should be anticipatory once sufficient data support the policy stance.
“Second, with the release of the agreement on the monetary policy framework, it is appropriate for the Reserve Bank to offer guidance on how it will implement the mandate.
The RBI maintained the cash reserve ratio at 4 per cent.
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Frequently Asked Questions about this Article…
India's central bank cut interest rates for the second time in less than two months due to softening inflation, particularly with cheaper vegetables and moderating inflation excluding food and fuel. This move is part of a global trend where central banks are easing rates to support economic growth.
The Reserve Bank of India has reduced the repo rate to 7.5 percent following the latest unscheduled rate cut.
The rate cut is seen as a vote of confidence in India's recent budget, which aims to balance fiscal consolidation with increased public spending on infrastructure, fostering conditions for growth and job creation.
The Reserve Bank of India acted outside the policy review cycle due to the weak state of certain economic sectors and the global trend towards easing. The decision was also supported by sufficient data backing the policy stance.
The monetary policy framework agreement provides guidance on how the Reserve Bank of India will implement its mandate, ensuring transparency and clarity in its policy actions.
Analysts viewed the rate cut as a positive response to India's budget, describing it as a fine balancing act between fiscal consolidation and creating conditions for growth and job creation.
The Reserve Bank of India has maintained the cash reserve ratio at 4 percent, despite the recent rate cut.
India's interest rate cut aligns with a global trend where central banks, including those in Europe and China, are easing rates due to disinflation and deflation concerns, even as the US Federal Reserve prepares to raise rates.
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