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INDIA-ECONOMY-RATE
India central bank keeps rates on hold in surprise move
MUMBAI, Dec 5, 2019 (BSS/AFP) – India’s central bank kept interest rates
on hold Thursday, defying expectations of a sixth consecutive cut this year
to jumpstart the economy after quarterly growth plunged to its lowest level
since 2013.
The Reserve Bank of India (RBI) said the benchmark repo rate — the level
at which it lends to commercial banks — would remain unchanged at 5.15
percent, a nine-year low.
The central bank however slashed its annual growth forecast to 5 percent
from 6.1 percent, as consumer demand and manufacturing activity contracts.
India’s economy grew at its slowest pace in more than six years in the
July-September period, down to 4.5 percent from 7.0 percent a year ago,
according to government data.
Though high by Western standards, that is well below the level needed for
India to provide the millions of jobs required each year for new entrants to
the labour market, posing a major headache for Prime Minister Narendra Modi.
Economists surveyed by Bloomberg News had largely predicted the central
bank would cut interest rates by 40-50 basis points to help the economy
recover after a dismal year.
But a sudden spike in retail inflation to 4.62 percent — beyond the
central bank’s target of four percent — may have encouraged the RBI to hit
pause on further rate cuts as Modi’s government struggles to kickstart what
was once the world’s fastest growing major economy.
Finance Minister Nirmala Sitharaman has announced a slew of reforms
including easing restrictions on foreign investment in key sectors, slashing
corporate taxes, and launching a privatisation drive aimed at reviving
moribund state firms.
But the measures have failed to raise confidence so far, economists say.
Demand for everything from cereals to cars has plummeted while unemployment
has hit a four-decade high.
RBI governor Shaktikanta Das — seen as a Modi ally — has cut interest
rates five times in a row starting from February 2019, bringing them down by
135 basis points.
But debt-ridden banks have not reduced their lending rates, and so failed
to pass on the benefits to consumers.
The lack of credit, coming after the collapse of India’s shadow banking
sector, has created a contagion of crisis, analysts say.
BSS/AFP/HR/1325