Home / Financial Services/ India unexpectedly cuts key rate, changes stance to neutral

India unexpectedly cuts key rate, changes stance to neutral

Comments / {{hitsCtrl.values.hits}} Views / Friday, 8 February 2019 00:00


CCTV cameras are seen installed above the logo of Reserve Bank of India (RBI) inside its headquarters in Mumbai, India - REUTERS 

MUMBAI (Reuters): India’s central bank on Thursday unexpectedly lowered interest rates and, as anticipated, shifted its stance to “neutral” to boost a slowing economy after a sharp slide in the inflation rate.

The cut is welcome news for Prime Minister Narendra Modi’s government, which wants to boost lending and lift growth as it faces elections by May.

The ruling Bharatiya Janata Party is already in election mode. In its budget on 1 February, the government doled out cash to farmers and tax cuts to middle-class families, at the cost of a wider fiscal deficit and larger borrowing.

The Reserve Bank of India’s monetary policy committee (MPC) cut the repo rate by 25 basis points to 6.25%, as forecast by 21 of 65 analysts polled by Reuters. Most respondents expected the central bank to only change the stance, to neutral.

Four of six MPC members voted to cut the rates, while all backed the stance change to “neutral” from “calibrated tightening”.

“Investment activity is recovering but supported mainly by public spending on infrastructure,” the MPC said in a statement, adding there is a need to strengthen private investment and buttress private consumption.

India’s rate cut continues a trend in which some major central banks, worried about slowing global growth and helped by low inflation, have moved firmly away from the tightening moves made last year. The Federal Reserve has changed direction, and now many analysts expect no US rate hikes this year, after four in 2018.

The last Indian repo rate cut, to 6.00%, was in August 2017.

The MPC meeting – the first for RBI Governor Shaktikanta Das – also decided to lower India’s inflation projection for April-September to 3.2-3.4% from the 3.8-4.2% seen in December.

India’s December headline inflation fell to an 18-month low of 2.19%, well below the RBI’s medium-term 4% target.

The MPC also trimmed its economic growth forecast, to 7.2-7.4% during April-September from its previous 7.5% estimate.

Share This Article

Facebook Twitter


1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.


Today's Columnists

Religion is a problem in Sri Lanka; can it be a solution?

Saturday, 17 August 2019

Generally, it is expected that religion should be a solution to a problem. Ironically in Sri Lanka religion is the problem. Therefore, what would be the solution? When religion becomes a problem of a country....

Orthodoxy and change: A perennial Muslim issue

Saturday, 17 August 2019

Whether Muslims live as minorities in non-Muslim countries or as majorities in a total of fifty seven countries, the clash of orthodoxy with modern challenges is a perennial issue that bedevils progress on several fronts in these communities.

Making the MCC Compact work for Sri Lanka

Friday, 16 August 2019

It is a sign of these political times that even an apolitical issue like a foreign aid program becomes a hot topic in Sri Lanka. In April 2019, the Board of Directors of the Millennium Challenge Corporation (MCC) approved a compact program for Sri La

Sri Lanka needs a president hungry for success, not power

Friday, 16 August 2019

The late John F. Kennedy described politics as a “noble adventure, an adventure in which one joins hands with the masses for the service of man”. Not that the Kennedys didn’t play “politricks” in their heyday. But playing “politricks” w

Columnists More

Special Report