Interest rates have been cut by India’s northern banks for the first time in nearly five years to stop Asia’s third-largest business from growing faster.
The Reserve Bank of India ( RBI ) reduced its repo rate from 6.5 % to 6.25 %, in line with the expectations of many economists.
The mortgage rate is the price at which business banks are lent by the central bank.
The most recent reduction occurs when India’s GDP growth is reported to have slowed to a four-year low of 6.7 %.
Sanjay Malhotra, the governor of the RBI, stated that the banks was continuing to hold its policy position as “neutral,” which would open up more space for growth and signaled more rate cuts.
In the fastest-growing big economy, the world’s investment growth and urban consumption have been declining. In addition, business gains decreased during the first quarter of this fiscal year.
But moderating prices, an increase in rural need and great agricultural output did help development, said Mr Malhotra.
The rate cut could lead to marginally lower mortgage and credit card interest rates as well as cheaper borrowing costs for companies.
The central bank’s rate reduction follows a range of measures previously announced, including an injection of$ 18bn ( £14.48bn ) into the domestic banking system, to ease a cash shortage in the economy.
Additionally, it had reduced the cash reserve ratio, or the resources that commercial businesses must keep with the RBI, by half a cent in December.
The RBI’s price walk follows the Union Budget’s$ 12bn tax cut for the struggling middle class.
Despite this, Mr Modi’s government aims to curb saving to decrease the budget deficit. With limited space for fiscal stimulus, economists expect the central bank to cut rates further by 0.5 % –1 % to support growth, according to various estimates.
The RBI’s work has been hampered by world uncertainties caused by US President Donald Trump’s tax war, an outflow of foreign investor money, and a degrading currency, which may further diminish if rates come down.
Due to heavy foreign buyer flows from stock markets in recent months, the Indian rupees is trading near record highs.