RBI Stays "Accommodative" With Rare 35 Basis-Point Cut to Spur Economy

The Reserve Bank of India delivered a bigger-than-expected interest rate cut, ratcheting up measures to support a slowing economy.

The repurchase rate was reduced by 35 basis points to 5.4 per cent -- the lowest since 2010 -- in a decision predicted by just one of 40 economists surveyed by Bloomberg. The Monetary Policy Committee kept its stance accommodative, which means rate increases remain off the table.

"Domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks," the central bank said in a statement Wednesday. "Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture."

The central bank has been the most aggressive in Asia in cutting interest rates this year to boost growth from a five-year low and spur investments. While the Federal Reserve's rate cut last week opens the door for more easing, escalating tensions between the US and China are also prompting some policy makers in the region to act to support their economies.

The 35 basis-point cut, voted for by four of the six members of the MPC, comes on a day when New Zealand too surprised with a bigger-than-expected easing. The Philippines is forecast to lower borrowing costs on Thursday for a second time this year.

Finance Minister Nirmala Sitharaman, who kept government spending in check in her maiden budget last month, had called for "significant" policy easing from the central bank to help revive growth.

The central bank cut the economy's annual growth forecast again. It expects growth for the year that began April 1 at 6.9 per cent, down from 7 per cent seen in June. It forecast inflation to remain benign -- at 3.1 per cent in the fiscal second quarter -- and well under the central bank's 4 per cent medium-term target for the rest of the year.

Latest high-frequency indicators from auto sales to exports show demand at home and abroad is waning. A lingering crisis among shadow banks has curbed borrowings by consumers and companies, and an uncertain monsoon is casting a shadow on rural consumption and wages. The next pulse-check for the economy is due on August 30, when gross domestic product data is due.

Governor Shaktikanta Das said in a recent interview that policy action will be depend on incoming economic data, while suggesting the MPC's change to an "accommodative" stance in June was equivalent to a quarter-point cut.