Indian central bank cuts key rates, stock markets fail to revive

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Indian central bank cuts key rates, stock markets fail to revive

On Monday, 5th August, the Indian Rupee had slumped to a six-year low against the American dollar, falling by around 1.63 per cent. On Wednesday, 7th August, the monetary policy committee (MPC) of the Indian central bank, the Reserve Bank of India (RBI) slashed the key bank interest rates.

Although the rate cuts were expected, the MPC had brought down the rates by more than what had been expected. Initially, analysts had predicted that the RBI would reduce the repo rates by 25 basis points (bps). But in its Wednesday meeting, the RBI had cut down the repo rate by 35 bps, reducing it to 5.40 per cent.

Likewise, the reverse repo rate had been brought down to 5.15 per cent. According to a Reuters report, four of the six MPC members had voted in favour of the rates being cut by 35 bps while the remaining two had called for a 25 bps rate cut.

This move from the RBI comes after a wave of news emerging about the slowing down of the Indian economy. Earlier, in a media briefing, finance minister Nirmala Sitharaman had called for rate cuts in a bid to tackle the prevailing economic situation in the country.

In a statement following their decision to cut the rates, the MPC noted, "Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture." The rate cuts, however, did not prevent the Indian stock markets from sliding on the day, though.

The Bombay Stock Exchange (BSE) slumped by around 0.86 per cent to end the day below the 37,000-mark. The National Stock Exchange (NSE) fell by about 0.92 per cent and finished the day below the 11,000-mark.