India’s Central Bank Cuts Rates for the First Time In Nearly Five Years, Forecasts Faster Growth Next Year

The reserve bank of India on Friday cut key interest rates for the first time in Nearly five years, as cooling inflation offers the Central Bank Room to Stimulate the Countrying Economy.

The Monetary Policy Committee Decided to Trim the REPO RATE by 25 Basis Points to 6.25%, RBI Governor Sanjay Malhotra said in a livestreamed address.

The Rate Reduction was widely expected And marked RBI’s First Cut Since May 2020 when the Country Battled The Pandemic-Inflicted Downturn.

The decision confirmed that the central bank’s priorities have “tilted from containing inflation to providing more support for the economy,” Shilan Shah, deputy chief emerging markets economist at Capital Economics said in a note.

“With the economy likely to remain in a soft patches for a few more Quarters Yet, Further Easing is on the cards,” Shah Said, Forecasting 75 Basis Points of Cuts of Cuts in this Easing Cycle.

The Central Bank Forecast Real GDP GROWTH for Next Fiscal Year at 6.7%, and Inflation Rate at 4.2%. For the fiscal year ending March this year, the rbi downgraded real gdp to 6.4% – its within for years – from 6.6% Forecast in December, While Information Rate was retained at 4.8%.

Indian Stocks Fell with the Benchmark Nifty 50 Index Sheding as much as 0.5%. The Yield on 10-Year Bonds Rose by More Than 4 Basis Points to 6.7%.

In a unanimous decision, the six-member panel voted to keep policy stance of “neutral.” That came as a surprise to some market watches who had predicted a shift to “Accommodative” Before The Announcement.

Thought Growth is expected to recover from the low of the second quarter ended September, it is still “much below that of last year,” Malhotra said,

“These growth-inflation dynamics open up policy space for the MPC to Support Growth, While Remining Focused on Aligning Inflation with the target,” He added.

The Benchmark Repo Rate Had Remained Steady at 6.5% for the Past Two Years, with Inflation Staying Above The Central Bank’s Medium-Term Target of 4%.

Following a peak in OctoberIndia’s Consumer Price Inflation Has Eased, Dropping With The Central Bank’s Tolerance Ceiling of 6%, Coming in at 5.22% in December and 5.48% in November,

Asia’s Third-Larges Economy has grappled with a sharp slowdown since last year, with A growth rate of 5.4% in the Quarter Ended SeptemberUndershooting expectations by a large margin and marking its Slowest expansion in Nearly two years.

With the rupee hitting record lows against the greenback, any cuts to the bank’s policy rate could spark a further rise in domestic inflation, putting further pressure on the currency and likely triggering capital outflows.

Following the Friday address, The Indian Rupee Strengthed Modestly to 87.47 Against the Greenback.

The rbi has reportedly Resorted to interventions In the Foreign Exchange Market to Help Cushion Any Sudden Outflows of Foreign Capital and Avoid a Steep Decline in the currency.