India cuts interest rate

India’s central bank delivered a third consecutive interest rate cut yesterday in a boost to newly re-elected Prime Minister Narendra Modi The snip in borrowing costs to a nine-year low comes as central banks around the world adopt a more dovish tone on monetary policy amid a slowdown in the global economy. Modi, 68, stormed back to power last month with a greater majority despite question marks over his economic record during his first term as leader of Asia’s third-largest economy.

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 per cent. It was the third reduction this year under governor Shaktikanta Das, a Modi ally who was appointed in December after his predecessor quit. 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 5.8pc, down from 6.6pc in the last quarter of 2018, according to data released yesterday. The announcement meant India had lost its place as the world’s fastest-growing major economy to China, which is currently on 6.4pc growth. The Indian government also estimated that the economy grew by 6.8pc in the year up to March 31, down from 7.2pc the year before. The RBI revised down its growth projection for 2019-20 from 7.2pc to 7.0pc, noting that the global economy has been “losing pace” as it cited the US-China trade war.

“Weak global demand due to escalation in trade wars may further impact India’s exports and investment activity,” it warned as it changed its monetary policy stance from neutral to accommodative, hinting that more cuts are on the horizon. This week, US Federal Reserve chief Jerome Powell signalled a willingness to cut rates as he acknowledged that trade conflicts had dimmed America’s growth outlook.

Delayed official figures also released on Friday showed that India’s unemployment rate hit a 45-year high of 6.1pc last year. 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 rightwing government announced that it would create two new cabinet committees tasked with figuring out how to stimulate job creation and investment. Sitharaman is due to present the annual budget on July 5.