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India’s central bank expected to cut rates for the fifth time in 2019

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India’s central bank expected to cut rates for the fifth time in 2019

india rate cut
Photo: Reuters

Wrapping up a three-day rate setting meeting in Mumbai today, the Reserve Bank of India (RBI) is expected to cut benchmark interest rates by 25 basis points to 5.15%, its fifth cut this year.

Amid sluggish consumer demand and private investment, Asia’s third-largest economy expanded just 5% in the three months to June, its slowest pace since 2013. In a bid to boost growth and investments, the government has unveiled various stimulus measures, including multiple rate cuts and reduced corporate taxes.

The measures have brought the cost of doing business in India into line with its main Asian rivals. However, they have done little to fix a lack of spending power and have negatively impacted inflation and the fiscal deficit, forcing the RBI to consider additional stimulus vehicles.

Following today’s announcement, the RBI will almost certainly further downgrade its growth projection of 6.9% for the current fiscal year. It will also likely reserve additional measures to see how inflation is affected by the cut. Given that investors are already expecting the 0.25% cut, they will focus more on the wording of the policy statement for clues on further measures. Most analysts are forecasting another cut of 0.15% in December.

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