India's Central Bank Cuts Key Lending Rate -- Update

By Debiprasad Nayak and Corinne Abrams Features Dow Jones Newswires

India's central bank cut its main lending rate to a more than six-year low Wednesday, as inflation eases and economic growth slows.

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The Reserve Bank of India's monetary policy committee lowered its repurchase rate by 0.25 percentage point to 6.0%, as predicted by economists polled by The Wall Street Journal. The RBI last cut the rate in October.

"There is an urgent need to reinvigorate private investment," RBI Gov. Urjit Patel told a news conference after the decision, though he cautioned that inflation could rise over the rest of the year.

The central bank also lowered its reverse repo rate--the rate at which it borrows money from commercial banks--by 0.25 percentage point to 5.75%.

Four of the six monetary policy committee members voted for the 0.25 percentage-point cut, Mr. Patel said. One voted for a 0.50 percentage-point cut and another voted to leave it unchanged.

Consumer-price inflation in Asia's third-largest economy slowed to 1.5% in June, well below the 2% bottom of the central bank's target range.

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Since it started this easing cycle in early 2015, the RBI has cut its benchmark rate by a total 2 percentage points on growing confidence that inflation was under control and rising concern the economy may need help to continue on its strong growth path.

Economists say they expect the central bank to cut by another 0.25 percentage point in the coming year.

The RBI said farm-loan waivers granted by state governments and planned increases in wages for public-sector employees could contribute to a rise in inflation. However, it is expected to remain a little above 4% by the end of this financial year, Mr. Patel said.

Food prices have been coming down, bringing inflation rates in India to new lows in recent months. A relatively strong rupee and stable global commodity prices have also helped cool the country's once chronic price increases.

Industrial growth, however, remains weak and needs policy support, corporate leaders say. The latest slowdown in industrial production suggests the economy isn't out of the woods. It was at 1.7% in May, down from April's 2.8%.

India's gross domestic product growth slowed to a two-year low of 6.1% during the three months through March.

Indian industry lobbies have been demanding even lower rates to help them boost investment and create jobs. Banks have been reluctant to pass on the lower rates to borrowers as they struggle under a growing burden of bad debt left over from a lending spree a decade ago.

Radhika Rao, economist at Singapore-based DBS Bank, said the neutral policy stance "will allow the RBI to be noncommittal on the future course of action, retaining the flexibility to react to the evolving inflation trajectory."

Write to Debiprasad Nayak at debi.nayak@wsj.com and Corinne Abrams at corinne.abrams@wsj.com

(END) Dow Jones Newswires

August 02, 2017 08:07 ET (12:07 GMT)