RBI cut interest rates for the fourth time this year

The Reserve Bank of India has cut interest rates  for the fourth time this year  joining other central banks from New Zealand and Thailand as monetary authorities scrambled to respond to concerns that the US-China trade war will drag down their own economies, particularly after China’s decision this week to let its currency weaken.

“Domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks” the RBI said in a statement.

India’s claim to be the world’s  fastest growing large economy was recently undermined  after gross  domestic product growth fell to 5. 8 per cent in the first quarter of 2019, the lowest in five years.

Yesterday RBI cut its growth forecast for this year to 6.9 per cent from 7 per cent while the World Bank said India fell behind France as the World’s seventh largest economy in 2018.

Prime Minister Narendra Modi, who wants to double the size of India’s economy to $5tn by 2025, accelerating growth has emerged as the biggest test of his second term  after winning landslide victory in May 2019.

Mr Sukla an Indian exporter said “ If you have a neighbour which is one of the world’s largest traders and economies and they decide to drop their currency by 5 to 10 per cent  over the next six months, you will be outpriced in the global market. The way that China navigates its currency going forward will have a huge impact”.

India’s currency has also weakened in recent weeks and foreign investors have taken money out of the country with a net $5.5bn leaving foreign portfolios in July.

RBI announced reduction in repo rate by an unconventional 35 basis points. RBI governor stepped into encourage banks to sanction more auto and personal loans by reducing the risk weight to revive demand.