Reserve Bank of India announces first rate cut in nearly five years as world’s most populous nation faces slowdown.
India’s central bank has cut its benchmark interest rate for the first time in nearly five years as officials try to reverse slowing economic growth in the world’s most populous country.
The Reserve Bank of India (RBI) said on Friday that it had lowered the repo rate, which the central bank lends to commercial banks, by 0.25 percent to 6.25 percent.
The RBI last cut the key interest rate in May 2020, after which it rolled out a series of hikes aimed at tamping down rising inflation in the wake of the COVID-19 pandemic.
RBI Governor Sanjay Malhotra, who took over from his more hawkish predecessor Shaktikanta Das in December, said a less restrictive monetary policy was more appropriate in light of the current “growth-inflation dynamics”.
“We are committed to conduct monetary policy and take such measures, as appropriate, which are timely, carefully calibrated and clearly communicated, to facilitate conducive macroeconomic conditions that reinforce price stability, sustained economic growth and financial stability,” Malhotra said.
India is growing faster than any other major economy, but the pace of its expansion has slowed considerably in recent months as rising food prices drag on consumption.
Gross domestic product (GDP) grew 5.4 percent year on year in the July-September quarter, after expanding 6.7 percent in the April-June period and 7.8 percent in the quarter before that.
The government of Prime Minister Narendra Modi has forecast growth of 6.4 percent for the fiscal year 2024/25, which would be the weakest performance since 2020 when COVID-19 upended the global economy.
Growth is expected to come in at 6.3-6.8 percent in 2024/25, below its post-pandemic trend.
Modi’s government last week announced sweeping tax cuts as part of the annual budget, raising the threshold at which workers are taxed on income from about $8,000 to $14,800.