Reserve Bank of India governor Shaktikanta Das addresses a media conference in Mumbai, June 6 2019. Picture: PUNIT PARANJPE / AFP
Reserve Bank of India governor Shaktikanta Das addresses a media conference in Mumbai, June 6 2019. Picture: PUNIT PARANJPE / AFP

Mumbai — India's central bank cut the benchmark interest rate on Thursday in a boost to newly re-elected Prime Minister Narendra Modi as he grapples with sluggish economic growth and decades-high unemployment.

The third snip in borrowing costs in 2019 comes as central banks around the world adopt a move doveish tone on monetary policy amid a slowdown in the global economy.

Modi, 68, stormed back to power in May with a greater majority despite question marks over his economic competence during his first term as leader of Asia's third-largest economy.

The new government was dealt a twin economic blow as it took office last week when data showed rising unemployment and economic expansion falling to a five-year low.

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 5.75%. 

It was the third consecutive reduction under governor Shaktikanta Das, a Modi ally who was appointed in December after his predecessor quit following a spat with the government over alleged interference. It is now the lowest in nine years.

The decision was predicted by 31 out of 43 economists surveyed by Bloomberg News.

The RBI said in a statement that the cut would help "efforts to boost aggregate demand" and "reinvigorate private investment activity".

Growth suffered a third straight quarterly decline in the first three months of 2019 to 5.8%, down from 6.6% in the last quarter of 2018, according to data released Friday.

The announcement meant India had lost its place as the world's fastest-growing major economy to China, which has 6.4% growth.

The Indian government also estimated that the economy grew by 6.8% in the year up to March 31, down from 7.2% the year before.

45-year high unemployment

Delayed official figures also released on Friday showed that India's unemployment rate hit a 45-year high of 6.1% in 2018.

The numbers came out only hours after Modi named Nirmala Sitharaman as new finance minister in his government, presenting an immediate challenge to his new administration.

On Wednesday, the government announced that it would create two new cabinet committees tasked with figuring out how to stimulate job creation and investment.

While the economy has regularly grown at about 7% since Modi came to power in 2014, it has failed to create enough jobs for the 1.2-million Indians who enter the labour market each month.

The unemployment figure was for 2017/2018 and should have been released before the six-week-long election which began in April.

The figures were leaked by a newspaper in January which said it was the worst since 1972/1973. The government insisted then that the report was not ready.

Sitharaman is due to present the annual budget on July 5.