India's stubbornly slowing economy received a needed boost Thursday when the Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points while adopting an accommodative policy stance. It's the third rate cut since February.
RBI said the benchmark repo rate, which is the rate at which it lends to commercial banks, will be reduced by 25 basis points to 5.75 percent. The reverse repo rate was reduced to 5.50 percent.
"A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern," said RBI's Monetary Policy Committee (MPC).
RBI said the rate cut will help "efforts to boost aggregate demand" and "reinvigorate private investment activity."
All six MPC members voted for the 25 basis points cut. They also agreed the RBI's stance be changed to "accommodative" from "neutral." MPC cut rates by the same amount twice before.
In reaching its decision, MPC said it took into account global economic conditions, which indicate a continuing slowdown in growth for the United States, Europe, and China.
The reduction in the repo rate was in line with predictions by 44 of 66 analysts polled by Reuters.
The widely anticipated move should inject some life into India's economy, which has been on the decline for the past four years. The moribund economy grew at a much slower-than-expected 5.8 percent in the first quarter, which is down from 6.6 percent in the last quarter of 2018, according to government data released Friday. This level was well below that needed to generate jobs for the millions of young Indians entering the labor force every month.
The weak economy also helped boost the unemployment rate to a 45-year high of 6.1 percent in the fiscal year 2017-18.
Analysts see the latest rate cut as a boost for newly re-elected Prime Minister Narendra Modi who has his hands full trying to reinvigorate a sluggish economy while whittling down decades-high unemployment.
India's economy has grown at a roughly 7.0 percent clip since Modi came to power in 2014. It has, however, failed to create enough jobs for the 1.2 million Indians who enter the labor market every month.
On Wednesday, Modi's government said it will create two new cabinet committees whose job will be to determine how to stimulate job creation and investment.
