Boost for Modi as India central bank cuts interest rate

India’s central bank delivered a third consecutive interest rate cut on Thursday in a boost to newly re-elected Prime Minister Narendra Modi as he grapples with sluggish economic growth. (File/AFP)
Updated 06 June 2019

Boost for Modi as India central bank cuts interest rate

  • The Reserve Bank of India (RBI) said the benchmark repo rate would be reduced by 25 basis points to 5.75 percent
  • The RBI said in a statement that the cut would help “efforts to boost aggregate demand” and “reinvigorate private investment activity”

MUMBAI: India’s central bank delivered a third consecutive interest rate cut on Thursday in a boost to newly re-elected Prime Minister Narendra Modi as he grapples with sluggish economic growth and decades-high unemployment.
The snip in borrowing costs to a nine-year low comes as central banks around the world adopt a more dovish tone on monetary policy amid a slowdown in the global economy.
Modi, 68, stormed back to power last month with a greater majority despite question marks over his economic record during his first term as leader of Asia’s third-largest economy.
The new government was dealt a twin blow as it took office last week when data showed rising unemployment and economic expansion falling to a five-year low.
The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would be reduced by 25 basis points to 5.75 percent.
It was the third reduction this year under governor Shaktikanta Das, a Modi ally who was appointed in December after his predecessor quit following a spat with the government over alleged interference.
The decision was predicted by 31 out of 43 economists surveyed by Bloomberg News.
The RBI said in a statement that the cut would help “efforts to boost aggregate demand” and “reinvigorate private investment activity.”
Growth suffered a third straight quarterly decline in the first three months of 2019 to 5.8 percent, down from 6.6 percent in the last quarter of 2018, according to data released Friday.
The announcement meant India had lost its place as the world’s fastest-growing major economy to China, which is currently on 6.4 percent growth.
The Indian government also estimated that the economy grew by 6.8 percent in the year up to March 31, down from 7.2 percent the year before.
The RBI revised down its growth projection for 2019-20 from 7.2 percent to 7.0 percent, noting that the global economy has been “losing pace” as it cited the US-China trade war.
“Weak global demand due to escalation in trade wars may further impact India’s exports and investment activity,” it warned as it changed its monetary policy stance from neutral to accommodative, hinting that more cuts are on the horizon.
“We expect (the RBI) to cut rates by an additional 50 basis points through the year,” said Garima Kapoor, an economist at Elara Capital.
This week, US Federal Reserve chief Jerome Powell signalled a willingness to cut rates as he acknowledged that trade conflicts had dimmed America’s growth outlook.
Delayed official figures also released on Friday showed that India’s unemployment rate hit a 45-year high of 6.1 percent last year.
The numbers came out only hours after Modi named Nirmala Sitharaman as new finance minister in his government, presenting an immediate challenge to his new administration.
On Wednesday, the right-wing government announced that it would create two new cabinet committees tasked with figuring out how to stimulate job creation and investment.
While the economy has regularly grown at about 7.0 percent since Modi came to power in 2014, it has failed to create enough jobs for the 1.2 million Indians who join the labor market each month.
The unemployment data was for 2017-2018 and should have been released before the six-week-long election which began in April.
The figures were leaked by a newspaper in January which called them the worst since 1972-73. The government insisted then that the report was not ready.
Sitharaman is due to present the annual budget on July 5.


Turkey names US-convicted banker to head Istanbul stock exchange

Updated 5 min 41 sec ago

Turkey names US-convicted banker to head Istanbul stock exchange

  • Mehmet Hakan Atilla was found guilty by a New York court in January 2018 of plotting to help Tehran evade American sanctions on Iranian oil proceeds

ISTANBUL: Turkey has named a banker convicted of sanctions busting in the US as the new chief executive of the Istanbul stock exchange, the finance minister has said.
The appointment of Mehmet Hakan Atilla, the former deputy director general of Halkbank, comes almost a week after US federal prosecutors filed criminal charges against the Turkish state-run bank.
Halkbank is accused of participating in a multi-billion-dollar scheme to evade economic sanctions on Iran.
Atilla was found guilty by a New York court in January 2018 of plotting to help Tehran evade American sanctions on Iranian oil proceeds.
He was released from prison in July 2019.
“After returning to his family and country following his wrongful conviction, Hakan Atilla’s period of relaxation has come to an end,” Finance Minister Berat Albayrak — also President Recep Tayyip Erdogan’s son-in-law — said on Monday.
“He will start work as the new Istanbul Stock Exchange managing director. I wish him and the stock exchange good luck,” Albayrak added.
“Mehmet Hakan Atilla was elected as CEO at the Borsa Istanbul board meeting dated October 21, 2019. Atilla will act as CEO and board member,” the stock exchange said in a statement.
The decision to give such an important role to Atilla appears to be intended as a defiant message to US authorities during a moment of acute tension between Ankara and Washington.
Relations between Turkey and the US have been particularly strained since Ankara launched a cross-border offensive this month against a US-backed Syrian Kurdish militia viewed by Turkish officials as “terrorists.”
But there have been multiple sources of tension between the NATO allies, including the US failure to extradite a Muslim preacher accused of ordering the failed coup in Turkey in 2016 and American military support for the Syrian Kurdish militia.
In response to the legal investigation, Halkbank accused American authorities of targeting Turkey because of the Turkish military operation launched on October 9.
Atilla replaces Murat Cetinkaya, who became a deputy governor of the central bank in August.
Cetinkaya is not to be confused with the former central bank governor of the same name.