A security personnel member stands guard at the entrance of the Reserve Bank of India headquarters in Mumbai, India. Picture: REUTERS / SHAILESH ANDRADE
A security personnel member stands guard at the entrance of the Reserve Bank of India headquarters in Mumbai, India. Picture: REUTERS / SHAILESH ANDRADE

Mumbai — The Reserve Bank of India (RBI) lowered its benchmark interest rates for a fourth straight meeting on Wednesday, with a slightly bigger than expected cut underscoring its worries about India’s near-five year low economic growth pace.

The six-member monetary policy committee (MPC) cut the repo rate by an unconventional 35 basis points (bps) to 5.40%, just above a 25 bps cut predicted by 80% of the 66 analysts polled by Reuters in July.

The RBI’s move came hours after the New Zealand central bank’s decision to cut its rates by a steep 50 bps, and just before the Bank of Thailand surprised the market by cutting its benchmark.

“With inflation projected to remain within target, addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture,” governor Shaktikanta Das told a news conference.

Asia’s third largest economy grew at a significantly slower-than-expected 5.8% annual pace in the January-March quarter. And most analysts expect data due later in August to show that growth in April-June faltered even further.

Signal of concern

The 35 bps rate cut is “a signal that the Reserve Bank of India’s MPC is quite concerned with the growth outlook”, said Suvodeep Rakshit, a senior economist with Kotak Institutional Equities in Mumbai.

The RBI lowered its economic growth forecast to 6.9% from 7% for the current fiscal year, and said it sees inflation remaining inside its target range over a 12-month horizon.

Indian finance minister Nirmala Sitharaman, in a newspaper interview last week, expressed that she would like to see a “significant” reduction in RBI policy rates, in order to bolster a weak economy.

Asked about the unconventional rate cut size at a media briefing, RBI Governor Shaktikanta Das defended the move, saying the MPC viewed a standard 25 bps cut as being “inadequate in view of the evolving global and domestic macro-economic” conditions, while a 50 bps cut was seen as potentially “excessive”, given past RBI actions.

Analysts said they still see scope for rate cuts as inflation is likely to remain muted.

“With softness in incoming data, we retain our call for another 25 bp cut, likely in the next quarter,” said Radhika Rao, DBS economist in Singapore.

Earlier this week, Sitharaman said the government planned to take steps to improve the state of the economy “fairly quickly” after getting inputs from business leaders.

Das said the recent rate cuts in tandem with anticipated government moves should lift sluggish economic growth.

Markets were little changed as the RBI decision was largely in-line with expectations. The 10-year benchmark bond yield rose to 6.37% from 6.33% before the announcement, while the rupee was barely moved at 70.84 per dollar.

Losses for India’s benchmark NSE Index increased after the rate announcement, with it closing down 0.85%.