India unexpectedly cuts key rate to boost slowing economy


This was the first monetary policy review for the former economic affairs secretary, who took over as RBI Governor in the second week of December 2018.

"The new governor has passed the litmus test, though with 50 percent marks", said Mahajan, co-convenor of the Swadeshi Jagran Manch, adding that the rate cut should have been at least half a percentage point.

The Reserve Bank of Australia, Bank of Korea and Bank of Thailand have also tempered their outlooks in recent weeks.

The government was believed to be unhappy with the RBI over a number of issues, including its apparent reluctance to cut rates to stimulate the economy.

"The decision would supplement government's measures announced in the budget and will boost lending to farmers, housing and manufacturing sectors", he said. Most polled respondents expected the central bank to only change the stance, to neutral. One, there will likely be a series of rate cuts from this point and the cumulative impact will considerably put pressure on banks to pass on the benefit to the end-consumer.

With inflation largely under control, the big concern for the government is growth, particularly in an election year.

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In his first presser after taking over the charge at RBI, Das had made it clear that the RBI also can't ignore growth worries in the economy. "Investment activity is recovering but supported mainly by public spending on infrastructure".

The BJP lost three key state elections to the opposition Congress late a year ago and national polls have indicated that Modi faces a tough re-election battle against a resurgent opposition as Congress and regional parties form alliances. What all this means is that if inflation doesn't surprise on the upside, there will be more rate cuts going ahead.

Economic growth fell to a worse-than-expected 7.1% in the July-September quarter from 8.2%, dragged down by slower consumer spending and farm growth, below analysts forecast for a 7.4% increase.

Technically, a 25 bps rate cut doesn't mean much to the borrower.

India's rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by low inflation, have moved firmly away from the tightening moves made a year ago.

Praveen Khandelwal, secretary of the Confederation of All India Traders, a traders lobby group, said a majority of India's traders and small manufacturers were finding it hard to borrow from banks, who are struggling to deal with $150 billion in distressed assets. This will allow highly rated cos to be able to borrow at competitive rates.