India cuts key rate in surprise bid to lift flagging economy

Mae Love
February 8, 2019

Reflecting the uncertainties that have "intensified over the past three months", the Bank downgraded its forecast for business investment this year to a decline of 2.75 per cent from growth of 2 per cent in November.

Monetary Policy Committee cut the repo rate by a quarter of a percentage point to 6.25 percent.

If inflation remains muted, Das hinted there is more room to cut rates, sounding a markedly more dovish tone from the central bank.

This dramatic slowdown is being driven by sharp falls in business investment, a drop in consumer spending and areas of weakness in the United Kingdom housing market.

But with no obvious way out of the Brexit deadlock in parliament and British Prime Minister Theresa May yet to secure any concessions from Brussels, the pound faces further downside risks, analysts say.

As a result of the announcement, Sterling dropped by 0.6% versus the USA dollar at 1.285.

The projections, which assume a soft Brexit with a transition...

The MPC also trimmed its economic growth forecast, to 7.2-7.4 percent during April-September, from its previous 7.5 percent estimate.

'A period of softer growth domestically and in the rest of the world was likely to be prove only temporary, ' the Bank said.

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India Inc Thursday cheered RBI's move to slash key interest rate by 25 basis points and hoped it would encourage banks to lower lending rates, thereby stimulating consumption and investment demand to boost economic growth.

At the end of past year, the BoE warned a no-deal Brexit and a sudden loss of confidence among foreign investors could hammer the economy more than the global fianncial crisis did. In the near- term, inflation will drop below the BOE's 2 per cent goal due to lower oil prices.

The main reason the BoE thinks underlying inflation pressures will grow is faster wage growth after Britain's unemployment rate hit its lowest level in more than 40 years.

The BoE said on Thursday a survey it conducted of more than 200 businesses showed that half had begun to prepare for a no-deal Brexit, something a majority expected would cause the economy to shrink and unemployment to rise. That was the biggest forecast cut since immediately after the 2016 Brexit referendum.

With Brexit developments still blurry, the central bank has to stick with adopting the current "wait-and-see" approach until there is more clarity in the coming weeks.

"There is a possibility of another rate cut by the central bank in April".

And banks are reluctant to cut deposit rates in the fiscal year's last quarter, as they are keen to shore up their books while not losing hefty deposits. German industrial production data published on Thursday raised fears that Europe's biggest economy might be heading for a recession.

Last week the U.S. Federal Reserve signalled an end to its three-year run of hikes.

But financial markets - factoring in the chance of a no-deal Brexit - see only slightly more than a 50 percent chance of an increase.

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