In­dia’s cen­tral bank cuts in­ter­est rates for the third time this year


In­dia’s cen­tral bank on Tues­day cut in­ter­est rates for the third time this year and played down re­cent strong growth in Asia’s third-largest econ­omy, say­ing in­vest­ment and de­mand re­mained weak.

The Re­serve Bank of In­dia (RBI) low­ered the bench­mark repo rate — the level at which it lends to com­mer­cial banks — by 25 ba­sis points to 7.25 per­cent with im­me­di­ate ef­fect.

It was in line with an­a­lysts’ ex­pec­ta­tions and means the RBI has now lopped 75 ba­sis points from bor­row­ing rates in 2015.

RBI gover­nor Raghu­ram Ra­jan said the cut was nec­es­sary to boost in­vest­ment and con­sumer de­mand in the econ­omy, which he said was still not fir­ing on all cylin­ders de­spite growth pick­ing up pace.

“We still be­lieve the econ­omy is be­low po­ten­tial. In­vest­ment is still tepid and de­mand is weak,” he told re­porters af­ter the bank’s mon­e­tary pol­icy meet­ing in Mumbai.

Prime Min­is­ter Naren­dra Modi’s right-wing gov­ern­ment swept to power last year pledg­ing to re­form and re­vive a flag­ging econ­omy, and has been keen for the RBI to cut in­ter­est rates.

It re­ceived a ma­jor boost on Fri­day when data showed the econ­omy grew at an an­nu­alised 7.5 per­cent in the fourth quar­ter of the fi­nan­cial year, over­tak­ing China.

The gov­ern­ment posted an­nual growth of 7.3 per­cent for 2014-15, up from 6.8 per­cent the pre­vi­ous year, but Ra­jan sug­gested firm ev­i­dence of an eco­nomic re­cov­ery was far from clear.

“With low do­mes­tic ca­pac­ity uti­liza­tion, still mixed in­di­ca­tors of re­cov­ery, and sub­dued in­vest­ment and credit growth, there is a case for a cut in the pol­icy rate to­day,” he said in a state­ment.

In­dia’s stock ex­change seemed unim­pressed by the mod­est cut and was down 1.57 per­cent in af­ter­noon trad­ing.

Ra­jan in­sisted a big­ger cut was not ap­pro­pri­ate, adding it was not the RBI’s job to be a “cheer­leader” for the econ­omy.

“This pol­icy stance is nei­ther con­ser­va­tive nor ag­gres­sive. It is just ap­pro­pri­ate given the con­di­tions he said, deny­ing the RBI was at odds with the gov­ern­ment.

“We have acted as much as what (the) data al­lowed us to do. We can­not be added.

The RBI an­nounced its first eas­ing in 20 months in Jan­uary, snip­ping 25 ba­sis points off the repo rate.

It then made a sur­prise cut in March be­fore keep­ing the rate un­changed in April, cit­ing in­fla­tion con­cerns and a fail­ure of most com­mer­cial banks to im­ple­ment re­duced loan rates

“Banks should pass through the se­quence of rate cuts into lend­ing rates,” Ra­jan re­it­er­ated on Tues­day.

reck­less,” Ra­jan


Re­serve Bank of In­dia (RBI) Gover­nor Raghu­ram Ra­jan at­tends a press con­fer­ence in Mumbai, In­dia, Tues­day, June 2.

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