India cuts rates by 25 basis points
Interest rate now stands at 6%, which is a seven-year low
The Reserve Bank of India (RBI) logo is pictured outside its head office in Mumbai, India. PHOTO: REUTERS
MUMBAI:
India’s central bank cut interest rates for the first time in almost a year on Wednesday amid sluggish growth and record-low inflation in the world’s fastest growing economy.
The Reserve Bank of India announced the benchmark repo rate - the level at which it lends to commercial banks - would be cut by 25 basis points to 6%, a near seven-year low. The interest rate last sat at 6% in September 2010.
The cut - the first since last October - was predicted by 41 of 57 economists polled by Bloomberg News, with the rest anticipating no change.
India launches national tax amid business doubts
Finance Minister Arun Jaitley called for a reduction in the key policy rate in June after retail inflation fell sharply from 2.18% to 1.54% - the lowest since the government started tracking it in its current form in 2012.
New Delhi has kept an inflation target of 4%, with room for a 2% increase or decrease. The June data was the first time the lower end of that band has been breached, experts said.
Rates are set by a six-member committee at the central bank.
RBI Governor Urijit Patel said four voted for a cut of 25 basis points, while one pushed for a double reduction and another for rates to remain unchanged.
Patel said low inflation and the successful rollout of the national Goods and Services Tax on July 1 helped steer the decision.
“These factors... opened up some space for monetary policy accommodation,” he told reporters.
The bank’s previous decision to cut rates came a month before Prime Minister Narendra Modi removed all large-denomination banknotes from circulation, in a shock move to tackle corruption and tax evasion.
Indian businesses brace for biggest-ever tax reform
The controversial policy was blamed for putting the brakes on India’s economic expansion. Growth slowed in the fourth quarter ended March to 6.1%, but the government defended the pain as necessary to clean up corruption rife throughout the economy.
Experts have predicted further disruption to the economy as businesses adjust to the Goods and Services Tax.
While most economists expected the cut, not all thought it would be useful.
“There are bigger problems in the economy. If there is no demand or overcapacity, 25 bps cut won’t make any difference,” said Sunil Sinha, principal economist at India Ratings & Research.
Published in The Express Tribune, August 3rd, 2017.
India’s central bank cut interest rates for the first time in almost a year on Wednesday amid sluggish growth and record-low inflation in the world’s fastest growing economy.
The Reserve Bank of India announced the benchmark repo rate - the level at which it lends to commercial banks - would be cut by 25 basis points to 6%, a near seven-year low. The interest rate last sat at 6% in September 2010.
The cut - the first since last October - was predicted by 41 of 57 economists polled by Bloomberg News, with the rest anticipating no change.
India launches national tax amid business doubts
Finance Minister Arun Jaitley called for a reduction in the key policy rate in June after retail inflation fell sharply from 2.18% to 1.54% - the lowest since the government started tracking it in its current form in 2012.
New Delhi has kept an inflation target of 4%, with room for a 2% increase or decrease. The June data was the first time the lower end of that band has been breached, experts said.
Rates are set by a six-member committee at the central bank.
RBI Governor Urijit Patel said four voted for a cut of 25 basis points, while one pushed for a double reduction and another for rates to remain unchanged.
Patel said low inflation and the successful rollout of the national Goods and Services Tax on July 1 helped steer the decision.
“These factors... opened up some space for monetary policy accommodation,” he told reporters.
The bank’s previous decision to cut rates came a month before Prime Minister Narendra Modi removed all large-denomination banknotes from circulation, in a shock move to tackle corruption and tax evasion.
Indian businesses brace for biggest-ever tax reform
The controversial policy was blamed for putting the brakes on India’s economic expansion. Growth slowed in the fourth quarter ended March to 6.1%, but the government defended the pain as necessary to clean up corruption rife throughout the economy.
Experts have predicted further disruption to the economy as businesses adjust to the Goods and Services Tax.
While most economists expected the cut, not all thought it would be useful.
“There are bigger problems in the economy. If there is no demand or overcapacity, 25 bps cut won’t make any difference,” said Sunil Sinha, principal economist at India Ratings & Research.
Published in The Express Tribune, August 3rd, 2017.