The Reserve Bank of India (RBI) on Friday cut its benchmark interest rates for the fifth time this year. The RBI monetary policy committee announced a 25 basis points cut in its policy rates in an effort to boost a sluggish economy as inflation remains in a comfortable zone.
According to a mint survey of bankers, RBI is expected to reduce policy rates by 25 basis points, while a minority expected a 40 basis points cut.
The committee said that it would maintain an accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target. This leaves room for more rate cuts in future.
The central bank’s panel has also reduced its growth forecast for the current fiscal from 6.9% to 6.1% earlier. The committee observed that risks to growth had emerged due to weak domestic demand and sagging export prospects on account of continuing trade tensions. The panel has, however, retained its consumer price inflation forecast for the second half of the financial year and pegged it at 3.5 %-3.7%.
India, which is the third largest economy of Asia, grew by just 5% in the June quarter in the slowest pace since 2013.
According to reports, inflation in August accelerated to a 10-month high but remained well below the central bank’s medium-term target of 4% for a 13th straight month. Retail inflation inched up to 3.21% in August.
The government has also mandated RBI to ensure that inflation remains below 4%, with a deviation of 2% on either side.