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India’s central bank expected to cut rates again amid soft economic growth

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India’s central bank expected to cut rates again amid soft economic growth

reserve bank of india
Photo: Punit Paranjpe/AFP/Getty

The Reserve Bank of India (RBI) is expected to cut rates by 25 basis points today, bringing India’s interest rate down to 5.5%.

A cut today would be the fourth this year, making India’s monetary approach the most aggressive in Asia. The moves come as India’s economy was recorded growing at its slowest economic rate in five years—clocking just 5.8% in Q1. At 3.2%, inflation also remains well below the RBI’s 4% target, adding a further drag on growth.

India’s central bankers are expected to cut rates by a further 50 basis points this year to try boost economic activity. However, a monsoon is expected to boost India’s agricultural sector, which makes up around 18% of the economy, and slowly improving lending rates could boost India’s economic outlook as well.

Nevertheless, rate cuts are unlikely to get India’s growth back to the 8% figure of 2015, let alone the double-digits targeted by Prime Minister Narendra Modi. Last month’s budget reined in spending to boost India’s attractiveness for investors, at the cost of providing the fiscal stimulus needed to boost growth. This could increase pressure on Mr Modi, although with a fresh mandate, the PM now has the freedom to adopt a longer-term economic focus.

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