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India’s central bank has cut benchmark interest rates for the first time in almost five years to bolster economic growth and reverse the widespread recession of the world’s most populous countries.
The decision to cut headline reporate by 0.25 percentage points was unanimous and widely anticipated by economists’ consensus.
Governor Sanjay Malhotra, former revenue secretary who took office in December, said he is the governor of the Reserve Bank of India, the governor of the Reserve Bank of India. He said inflation is expected to continue to ease from the headline rate of 5.2% in December.
However, he said, “The diverse trajectories of monetary policy across advanced economies, prolonged geopolitical tensions and rising trade and policy uncertainty have exacerbated financial market volatility.”
India still records the fastest GDP growth in major countries, but is tackling rising price pressures, stagnant wages, weak consumption and a disappointing set of recent corporate revenues.
GDP growth slowed to 5.4% in the quarter until the end of September, the lowest in nearly two years. The government forecasts growth of 6.4% for the current fiscal year, the weakest percentage of four years, down from 8.2% in 2023-24.
Suvodeep Rakshit, chief economist at Kotak Institutional Equities, said the RBI move was “to be cautious about inflation and external sector risks, while addressing growth concerns, at the end of the first monetary policy meeting under Malhotra. It shows the transition to doing it.”
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The decision to appoint New Delhi Malhotra is seen as a signal that Prime Minister Narendra Modi will no longer tolerate higher borrowing costs, rather than leaving the third term to Hawkish’s predecessor Shaktikantadas. I did.
India has steadily raised its reporate following the coronavirus pandemic, cutting back prices that deeply cut the spending output for poor rural and middle classes.
The RBI held a rate of 6.5% for two years under the DAS, which was criticized by government ministers, even if inflation violated the central bank’s target band at the end of last year.
There were also cuts, despite the Indian currency hitting a new low. The rupee lost about 2% of its value for the dollar’s strengthening this year, raising concerns about import inflation.
At a press conference in Mumbai on Friday, Malhotra said the central bank considered depreciation of the rupee, but other “global uncertainties” such as US President Donald Trump’s wary trade policy were “higher.” “I’m worried.”
Even if Trump rolls a barrage of tariffs, the threat of trade disruption could impact growth and investment, spurring consumers to slow spending, he added.
Economists have predicted further speed reductions under the more incredible RBI, even if an uncertain geopolitical environment prevented Malhotra from deeper reductions.
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“While further interest rate cuts are offshore, the rate reduction cycle could be relatively shallow, especially when global headwinds rise,” said Sakshi Gupta, principal economist at HDFC Bank.
Since Malhotra took the helm, the central bank last month announced a $18 billion measure to send liquidity to the Indian banking sector. Many economists saw it as an early move for the new governor to turn towards a sluggish monetary policy.
Modi is also trying to strengthen domestic consumption, including tax cuts for middle-class households in the budget announced last week. Finance Minister Nirmala Sitharaman said the move “leaves more money to hand and encourages household consumption, savings and investment.”
