In­dia cuts key rate — first in re­gion this year

New Straits Times - - Business -

MUMBAI: The Re­serve Bank of In­dia (RBI) yes­ter­day used the room pro­vided by slump­ing in­fla­tion to cut its main pol­icy rate — the first eas­ing by an Asian cen­tral bank this year — but it kept the mar­ket guess­ing on whether there’s more space for trim­ming.

The rate cut is the RBI’s first since one of the same size in Oc­to­ber and a show of con­fi­dence in a coun­try that has ex­pe­ri­enced a surge in for­eign in­vest­ments into debt and shares this year.

Cut­ting the re­pur­chase agree­ment (repo) rate by 25 ba­sis points to 6.00 per cent — the low­est since Novem­ber 2010 — had been widely an­tic­i­pated as a slump in food prices sent June con­sumer in­fla­tion to a more than five-year low of 1.54 per cent.

The RBI said re­duced prices pro­vided “some space” for mon­e­tary pol­icy ac­com­mo­da­tion — in­fla­tion is now well be­low the RBI’s four per cent tar­get and its pro­jec­tion of 2.0 to 3.5 per cent in the April-Septem­ber pe­riod.

The rate cut will likely ease some of the pres­sure from the gov­ern­ment and mar­kets for action to lift the econ­omy, which had an­nual growth in Jan­uary-March of 6.1 per cent — fast by global stan­dards but In­dia's low­est num­ber in over two years.

But the RBI also re­tained its “neu­tral” stance, and warned in­fa­tion could ac­cel­er­ate. Reuters

BLOOMBERG PIC

The Re­serve Bank of In­dia re­tains its ‘neu­tral’ stance but warns of ris­ing in­fla­tion.

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