India’s central bank cutting key interest rates to five-year low

The Reserve Bank of India (RBI) has for the first time this year cut its core interest – the repo interest – from 6.75% to 6.5%. The reduction has been widely anticipated due to Asia’s third-largest economy’s continuous battle with weak inflation. The adjustment is a sign for potential further rate cuts to come in the near future. The RBI also confirmed that it is trimming its benchmark lending rate following four attempts to halt sliding prices in 2015.

In the first policy statement of the new fiscal year, RBI governor Raghuram Rajan said: “Retail inflation measured by the consumer price index (CPI) dropped sharply in February after rising for six consecutive months.”

“The Reserve Bank will continue to watch macro-economic and financial developments in the months ahead with a view to responding with further policy action as space opens up.” , the bank governor added.

India’s economy has been growing at a faster rate than China’s – above 7% per annum – as China’s banks and businesses are hampered by debts. The sluggish global economy is damping demand for Indian exports and foreign investors have been less stimulated for doing business in the country. Despite the drop, Indian interest rates still remain much higher than that of other major economies – in countries such as the United States and Japan the benchmark rates are hovering around the zero mark.