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Financial News: India Central Bank Cuts Rates For Fifth Time

India Central Bank Cuts Rates For Fifth Time

10/04/2019 - 03:45:00 (RTTNews)

(RTTNews) - India's central bank reduced its benchmark rate for the fifth time this year on Friday, to its lowest level since 2010, as policymakers assessed it necessary to restore growth momentum amid slow inflation.

The Monetary Policy Committee of the Reserve Bank of India, headed by Shaktikanta Das, decided to reduce the key repo rate by 25 basis points to 5.15 percent from 5.40 percent, with immediate effect. The reverse repo rate was adjusted to 4.90 percent and the marginal standing facility rate and the Bank Rate were reduced to 5.40 percent.

The central bank has so far lowered its key interest rate five times this year by a cumulative 135 basis points.

At the latest bi-monthly meeting, the fourth session this fiscal year, all members of the MPC voted to reduce the policy repo rate, but one member sought a bigger 40 basis point reduction.

The MPC said the impact of monetary policy easing since February is gradually expected to feed into the real economy and boost demand.

Leaving the door open for further easing, the MPC said they decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

Although stimulus measures unveiled by the government are set to boost both private consumption and investment, the continuing economic slowdown warrants intensified efforts to restore growth momentum, the MPC said.

As inflation is set to remain below target, there is policy space to address growth concerns, members added.

Given that interest rates in emerging markets rarely stay on hold for prolonged periods, the MPC will opt for modest rate hikes by the end of 2020, Shilan Shah, an economist at Capital Economics, said.

The central bank lowered its real growth projection for 2019-20 to 6.1 percent from 6.9 percent as domestic demand conditions remained weak amid subdued prospects for exports.

Inflation projection for the second half of financial year 2019-20 was retained at 3.5-3.7 percent. The central bank targets inflation of 4 percent within a band of +/- 2 percent over the medium term.

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