MUMBAI - India’s central bank cut its policy interest rate by 25 basis points on Thursday, in a widely expected move to boost the economy just a week before voting begins in an election that will decide whether Prime Minister Narendra Modi gets a second term.
“The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish,” the RBI wrote in the policy statement. While the central bank projected retail inflation at 3.8 percent by January-March 2020 - within its target of 4 percent - it also warned of the upside risks to price pressures if food and fuel prices rose abruptly, or if fiscal deficits overshot targets.
Speaking at an industry event, Finance Minister Arun Jaitley said that the government would continue with fiscal consolidation and pursue policies to enable further reduction in interest rates if it was re-elected. Annual consumer inflation was just 2.57 percent in February following five months of deflation in food prices, and the RBI said it could be forced to revise down its inflation projection if the current economic slowdown become more pronounced.