India’s central bank delivers pre-election rate cut prime minister Narendra Modi was hoping for
- Government officials praise Reserve Bank of India governor Shaktikanta Das’ 25-basis-point rate cut, saying it underlines low inflation and high growth path for India for 2019-20
- Economists however were more cautious, concerned that the monetary and fiscal stimulus would be inflationary
India’s new central bank chief delivered an unexpected interest rate cut, providing Prime Minister Narendra Modi with the kind of stimulus he needs to stoke economic growth in an election year.
In a sharp reversal from October, when the Reserve Bank of India took rate cuts off the table, governor Shaktikanta Das – who took office in December – opened the door to more policy easing and brought growth firmly back onto the Monetary Policy Committee’s agenda. That was a departure from his predecessor Urjit Patel, whose singular aim was to meet the RBI’s 4 per cent inflation mandate.
The surprise move came almost a week after Modi’s administration unveiled an expansionary budget, which included US$13 billion of help for consumers ahead of the poll that’s due by May, and days after a top adviser to the prime minister said the RBI should cut rates.
Das, a career bureaucrat, was appointed soon after Patel resigned as governor amid a heated public battle with the state, which led to questions about the central bank’s independence from politics. Modi’s government has been pushing the RBI to transfer more of its excess capital to the state as well as ease lending restrictions on banks to spur growth.
