India Slashes Interest Rates First Time in Half a Decade

India’s central bank has slashed interest rates for nearly half a decade to counter slowing growth in Asia’s third largest economy.

The Reserve Bank of India (RBI) reduced its repo rate from 6.5% to 6.25%, in line with the expectations of many economists.

The repo rate is the level at which the central bank lends to commercial banks.

The latest cut happens when India’s GDP growth is seen slowing to a four year low of 6.7%.

RBI governor Sanjay Malhotra said the bank was keeping its policy stance “neutral”, which would open more space to support growth, signalling further rate cuts.

Investment growth and urban consumption in the world’s fastest growing major economy have been flagging. Corporate profits have also shrunk in the first half of this financial year.

But moderating inflation, an increase in rural demand and good agricultural output will help growth, said Mr Malhotra.

The rate cut could lead to marginally lower mortgage and credit card interest rates as well as cheaper borrowing costs for companies.

The central bank’s rate reduction follows a range of measures previously announced, including an injection of $18bn (£14.48bn) into the domestic banking system, to ease a cash shortage in the economy.

Despite this, Mr Modi’s government aims to curb spending to reduce the budget deficit. With limited room for fiscal stimulus, economists expect the central bank to cut rates further by 0.5% –1% to support growth, according to various estimates.

BBC/Ejiofor Ezeifeoma