India cuts key rate — first in region this year
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
The Reserve Bank of India retains its ‘neutral’ stance but warns of rising inflation.