India’s central bank to cut interest rates amid slugishness

India’s central bank to cut interest rates amid slugishness

Markets will be surprised if India’s central bank doesn’t cut interest rates today. Figures released last month showed the Indian

Photo: Punit Paranjpe/AFP/Getty Images

Photo: Punit Paranjpe/AFP/Getty Images

Markets will be surprised if India’s central bank doesn’t cut interest rates today.

Figures released last month showed the Indian economy has been buffeted by headwinds over the past year, including Prime Minister Narendra Modi’s surprise decision to remove 86% of all cash from circulation. Inflation now sits at a five-year low of 1.5%, while first quarter GDP growth came in at a modest 6.1%—the slowest since 2015.

The figures are in stark contrast to those released 12 months ago. Then, growth clocked more than 9% and inflation was at an overheated 6%.

To combat the sharp downturn, Reserve Bank Governor Urjit Patel is widely expected to cut rates by 0.25% today, lowering borrowing costs and injecting much-needed cash into the economy. Indeed, Patel came under fire from PM Modi’s top economic adviser Arvind Subramanian for failing to make a move last month.

While a rate cut will bring India’s lending rate to 6%—the lowest point in seven years— markets have largely factored in the move; expect short-term market turmoil if Mr Patel and his team fail to make it.