MUMBAI (AFP) – India’s central bank cut interest rates yesterday for the first time in nearly five years, as concerns over a growth slowdown in the world’s fifth largest economy outweighed inflation risks.
The Reserve Bank of India (RBI) said the benchmark repo rate, the level at which it lends to commercial banks, would be reduced by 25 basis points to 6.25 per cent.
While major central banks around the world cut rates last year, with some continuing to do so, lingering inflation prevented India’s from following suit.
Retail inflation in the country has cooled recently, coming in at a four-month low of 5.22 per cent in December, but still remains above the central bank’s medium-term target of four per cent. Easing price pressure now appears to have provided room to focus on boosting growth. India’s economy expanded much slower than expected in the September quarter, owing to sluggish manufacturing and tepid urban consumption.
It is now forecast to expand this fiscal year at its slowest pace since the COVID-19 pandemic, having grown more than eight percent last year.
RBI governor Sanjay Malhotra, in his first monetary policy review, said that inflation was “expected to further moderate in 2025-26” and that, while growth would recover from its September quarter lows, it was still “much below” last year.
“Considering the existing growth-inflation dynamics… a less restrictive monetary policy is more appropriate at the current juncture,” Malhotra said.
