India's Central Bank Cuts Rate to 5.5%, Lowest Since August 2022
India's central bank, the Reserve Bank of India (RBI), has surprised markets with a significant interest rate cut, lowering the benchmark policy rate to 5.5%. This is the lowest level since August 2022. The move, announced recently, marks the third consecutive rate reduction since February. This decision contrasts with the median estimate of 5.75% predicted in a Reuters poll.
Economic Context
The RBI's decision follows encouraging GDP growth figures for the fiscal fourth quarter, with the Indian economy expanding by 7.4% year-on-year. This surpassed economists' estimates of 6.7%. Despite this positive data, the central bank has maintained its full-year GDP growth forecast at 6.5%, a notable slowdown from the 9.2% growth recorded in the previous financial year.
Growth Concerns and Inflation
The RBI had previously expressed concerns about growth prospects, particularly in light of potential trade tariffs from the United States. A contributing factor to the rate cut is the moderating inflation rate in India. The most recent inflation reading for April stood at 3.16%, the lowest level since July 2019, providing the RBI with greater flexibility to implement rate cuts.