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Financial News: India Cuts Key Interest Rate For Second Time

India Cuts Key Interest Rate For Second Time As Election Looms

04/04/2019 - 03:27:00 (RTTNews)

(RTTNews) - India's central bank slashed its key interest rate for a second straight session in April and trimmed the growth and inflation outlook, as the world's largest democracy heads to a general election next week.

The Reserve Bank of India on Thursday slashed its repo rate by 25 basis points to 6 percent, in line with economists' expectations, and lowered the growth and inflation outlook.

The reverse repo rate was lowered to 5.75 percent and the marginal standing facility rate was cut to 6.25 percent.

The Monetary Policy Committee decided to maintain the neutral monetary policy stance, the RBI said.

"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," the bank said.

The latest rate cut is the second in a row. The MPC had reduced the interest rate in the previous session in February, which was the first chaired by the new RBI Governor Shaktikanta Das.

The six member MPC was divided in the latest interest rate cut which came just days ahead of a general election in the country that is set to start later this month.

Four policymakers, including Governor Das, voted in favor of the policy rate cut this time, while external member on the MPC Chetan Ghate and RBI Deputy Governor Viral Acharya sought to leave the rate unchanged as in the previous policy session in February.

Further, five members of the MPC voted to maintain the neutral stance of monetary policy, while policymaker Ravindra Dholakia sought to make it accommodative.

"The MPC notes that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front," the bank said.

"The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish."

The bank trimmed the GDP growth projection for 2019-20 to 7.2 percent from 7.4 percent. The forecast range for the first half of the year was lowered to 6.8-7.1 percent from 7.2-7.4 percent. Growth was seen between 7.3-7.4 percent for the second half of the year.

Risks to the growth outlook were evenly balanced, the RBI said.

Assuming a normal monsoon this year and considering several other factors, the bank revised down the path of CPI inflation to 2.4 percent in Q4:2018-19, 2.9-3.0 percent in H1:2019-20 and 3.5-3.8 percent in H2:2019-20, with risks broadly balanced.

The country is facing a general election that will be held in several phases starting April 11. The fight between different parties is tight and the ruling alliance led by the Bharatiya Janata Party is hoping to return its pro-business leader Narendra Modi to power.

The main opposition, the Congress Party led by Rahul Gandhi, has unleashed a fierce campaign against Modi, highlighting the corruption under the existing government and the troubles caused by some of the drastic economic measures such as demonetization and the haphazard implementation of GST.

The highlight of Gandhi's election manifesto is the promise that if his party came to power the government would give 72,000 rupees each to 50 million poor families under a scheme called "NYAY".

For comments and feedback: contact editorial@rttnews.com

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