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India central bank surprises with a rate cut, changes stance to neutral

Comments (0) Economy News

Image Credit- asia.nikkei.com

MUMBAI – India’s central bank on Thursday unexpectedly lowered interest rates and, as anticipated, shifted its stance to “neutral” from “calibrated tightening” to boost a slowing economy after a sharp fall in the inflation rate.

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

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

The Indian rupee weakened to 71.69 to the dollar immediately after the announced but strengthened soon after to 71.42.

The NSE index was up 0.04 percent at 11068.05 while the 10-year benchmark government bond yield fell to 7.51 percent from Wednesday’s close of 7.56 percent.

Thursday’s 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.

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