A substantial fall in global commodity prices allowed India’s central bank to front-load interest rate reductions with a better-than-expected 50 basis point cut on Tuesday, Reserve Bank of India Governor Raghram Rajan said on Tuesday.
The RBI cut its policy interest rate to a 4-1/2 year low of 6.75 percent, in a move that, with inflation running at record lows, could help an economy in danger of slowing down.
Rajan however cautioned that India would have to steer through “tubulent waters” for a while longer, and added the central bank was focused on making India more robust to support strong growth.
“Today’s 0.5 per cent rate cut based on progress on the ground; It’s not any Diwali bonus”, he said.
Banks should be able to pass on the entire rate cut of 1.25 per cent this year to borrowers over time: Rajan.