MUMBAI - The Reserve Bank of India cut its policy interest rate by 25 basis points in a widely expected move on Thursday, while also changing its policy stance to “accommodative,” after latest data showed the economy growing at its slowest in over four years.
Asia’s third largest economy grew at a much slower-than-expected 5.8% in the last quarter, far below the pace needed to generate jobs for the millions of young Indian’s entering the labour market each month. The MPC said it had factored in global economic conditions, noting that leading indicators point to slowing growth in the United States, Europe and China.
New Finance Minister Nirmala Sitharaman could propose tax cuts to boost demand when she presents her maiden budget on July 5. The outlook for retail inflation in the six months to end-September was raised to 3.0-3.1%, just up from the outlook of 2.9-3.0% given in April. The inflation outlook for the back half of the fiscal year in March was put at 3.4-3.7%, down from an earlier projection of 3.5-3.8%.
A series of defaults by Infrastructure Leasing and Financial Services last year, has also stirred major unease over the health of Indian’s non-banking finance companies, raising fears of a contagion and pushing up their borrowing costs.
Seems like the global economy is not good.