Against the backdrop of heightened global risks, the Reserve Bank of India cut interest rates for the first time in nearly five years to help boost the slowing economy.
The Monetary Policy Committee, led by new Governor Sanjay Malhotra, voted unanimously to cut the benchmark interest rate by 25 basis points to 6.25%, the first rate cut by the Reserve Bank of India since May 2020. Most of the 44 economists surveyed had expected this outcome.
All committee members also voted to maintain a neutral stance on monetary policy, which Malhotra said provided the central bank with future flexibility.
The growth-inflation dynamic "opens up space to focus on growth," Malhotra said in a televised speech. He said the Reserve Bank of India will "continue to be unequivocal in supporting economic growth while seeking inflation to be persistently consistent with its target."
He also reiterated the central bank's position on the exchange rate, saying foreign exchange intervention is aimed at curbing excessive market volatility, but the central bank does not target specific levels or ranges.
Indian government bonds fell after the policy decision, with the benchmark 10-year bond yield rising 3 basis points to 6.69%. The rupee rose. Stocks fell, with the benchmark NSE Nifty 50 index down 0.2%.
Malhotra said the global economic environment remains challenging. "Global growth is below historical averages, although high-frequency indicators suggest that the global economy is resilient as trade continues to expand."
"Different monetary policy trajectories across advanced economies, lingering geopolitical tensions, and elevated trade and policy uncertainty have fueled volatility in financial markets," he said.