India shocks markets with another interest rate cut
Yesterday, the Indian Reserve Bank slashed its lending rates by 0.25%, bringing their interest rate to 7.5%.
Yet another major world economy has left markets in shock, as India’s central bank joins the ever expanding cuts club.
Yesterday, the Indian Reserve Bank slashed its lending rates by 0.25%, bringing their interest rate to 7.5%.
The Reserve Bank of India’s (RBI) governor Raghuram Rajan outlined weakness in parts of the economy, as well as favourable inflation figures and structural overhauls in government spending, as some of the reasons for the sudden rate cuts.
“The government has emphasised its desire to clean up legacy issues which gave a misleading picture of the true extent of fiscal rectitude, and has also moderated the optimism in its projections,” Mr Rajan said in a statement.
This is the second time this year India has cut its rates – both times taking markets by surprise.
In mid-January, Mr Rajan reduced rates by a quarter of a percent; the first cut the RBI had made in almost two years.
The January cut, according to Mr Rajan, was made amid signs India was making strong headway with inflation – a spector the Indian economy has battled for years but looks now to be taming.
Mr Rajan said in his statement that inflation in January 2015 at 5.1%, as measured by the new index, was well within the target of 8% for January 2015.
He added the RBI will seek to bring the inflation rate to the mid-point of the 4% band by the end of a two year period starting fiscal year 2016-17.
With these cuts, it would seem India has joined a global trend of monetary easing.
In the first few months of 2015, a dozen central banks around the world have cut their lending rates, including Australia and China.
With many OECD countries looking likely to continue this stimulus trend, pressures are mounting for the Reserve Bank to join the rapidly expanding cuts club.
Jason Walls
Thu, 05 Mar 2015
Thu, 05 Mar 2015
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India shocks markets with another interest rate cut
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