The Reserve Bank of India (RBI) surprised markets early on Tuesday morning, when the central bank cut its key benchmark rate by 50 basis points to 6.75 percent. RBI Governor, Raghuram Rajan, was in a visibly upbeat mood as he made the announcement. Investors also reacted positively to the news with the SENSEX Index trading up as much as 2.2 percent from its opening level of 25,496.
Containing inflation is the goal
The central bank had previously cut interest rates three times this year, lowering it by 25 basis points each time. The RBI cited containment of inflation, last reported at 3.66 percent in August1, as the primary reason for the slightly more aggressive rate-cut saying, “Headline consumer price index (CPI) inflation reached its lowest level in August since November 2014. The ebbing of inflation in the year so far is due to a combination of low month-on-month increases in prices and favourable base effects.” The central bank also expects the Indian economy to expand by around 7.4% this year, making it the fastest growing economy in the world.2
A Bloomberg survey showed that only one in a group of 52 surveyed economists made the right call on the RBI rate-cut, making this quite the statement by the central bank and highlighting improved confidence in the economy and a desire to spur development even further. India remains a bright spot in global markets. Our Excel India Fund is the best chance for you to get involved in this global powerhouse.
1 Bloomberg Data as of August 31, 2015
2 Reuters, India cuts interest rates more than expected as RBI “front loads”, September 2015