India’s Central Bank Cuts Rate by More than Expected

India slashed interest rates for the fourth time this year on Tuesday, a policy move aimed at shoring up economic growth in the face of rising global risks.

The Reserve Bank of India cut the rate at which it lends to banks by 0.5 percentage points to 6.75%, a larger reduction than economists had expected. Two of the bank’s previous cuts — made in January and March — were unscheduled surprises.

Economists said the U.S. Federal Reserve’s reluctance to hike rates, and lower inflation, had given the RBI room to maneuver. Shilan Shah of Capital Economics said the size of the interest rate cut was a “major surprise,” and a way for the central bank to “front load” looser policy.
Investors cheered the news, sending Mumbai’s Sensex index into positive territory. It closed up 0.6% even as other regional markets slumped.

But RBI Governor Raghuram Rajan sounded a note of caution about the health of Asia’s third-largest economy.

“In India, a tentative economic recovery is underway, but is still far from robust,” Rajan said in a statement. The central bank governor said that global financial markets had become more unstable in recent months, and he noted increased economic risks in China, Brazil, Russia and South Africa.

As a result, he said, the RBI’s policy stance “will continue to be accommodative.”

via CNN

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza