Mumbai: India’s central bank on Wednesday cut interest rates for the fourth time this year and slashed growth forecasts as New Delhi battles a sluggish economy and high unemployment.
The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would be reduced by 35 basis points to 5.40 per cent, taking rates to their lowest level since 2010.
“The monetary policy committee was of the view that a 25-basis point rate cut was inadequate due to evolving global economic conditions while a 50-basis point cut would be excessive,” RBI governor Shaktikanta Das told reporters.
“Hence, 35 basis points was viewed as a balanced level of cut due to the current circumstances.”
All 36 economists surveyed by Bloomberg News had predicted the central bank would cut rates by 25 basis points.
The Reserve Bank also revised down its growth projection for 2019-20 from 7.0 per cent to 6.9 per cent, noting that the global economy has been losing pace.
“Domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks,” it added in a statement.
A fall in domestic demand lowered India’s growth rate in the last quarter to 5.8 per cent, with unemployment at its highest since the 1970s.
Indian carmakers including Mahindra & Mahindra have halted production and reported falling sales as consumer demand fell throughout 2019.
The cut to borrowing costs comes as central banks around the world adopt a more dovish tone on monetary policy amid the global slowdown.
This is the fourth reduction this year under governor Shaktikanta Das, an ally of Prime Minister Narendra Modi who was appointed in December after his predecessor quit following a spat with the government over alleged interference.
Modi — who won a second landslide victory in recent national elections — faces a massive challenge to create enough jobs for the 1.2 million Indians who join the labour market each month.
The new government that took charge in May faced twin blows when data showed economic expansion falling to a five-year-low and rising unemployment. — AFP
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