India cuts rates despite Modi’s looser budget
INDIA’S central bank yesterday made an unexpected cut to interest rates for the second time this year.
Rates were cut to 7.5 per cent from 7.75 per cent. After the bank’s last meeting in February, it said it would likely cut rates further if the government planned to cut spending.
Over the weekend, Narendra Modi’s government unveiled its budget for the year to April 2016, which aims to slow the pace of deficit reduction. “Plans to ramp up capital expenditure while keeping growth in current expenditure [such as on public sector wages and subsidies] low appear to have been enough to satisfy the RBI [Reserve Bank of India],” said economist Shilan Shah from Capital Economics.
Shah expects further rate cuts with inflation at 5.1 per cent in January, below the RBI’s six per cent target.