Reserve Bank of India cuts interest rates, lifts foreign debt limits

NEW DELHI – The Reserve Bank of India has surprised markets by cutting interest rates not by 25 basis points, as expected, but by double that amount. ANZ Bank says the market debate, if any, was the small probability that the RBI may choose to pause given uncertainty on inflation ahead, given a not-so-great monsoon, and the ‘usual’ balanced-to-cautious public comments by the central bank in the run-up to the decision.  

RBI justified thelarger ‘frontloaded’ cut in terms of the need to support investments by providing more certainty about the extent of monetary stimulus in the pipeline.
ANZ says RBI sounds rather relaxed about meeting its next inflation target of 5% for January 2017. “Indeed, inflation has been coming in lower than our and RBI’s projections.
“Another cut is very unlikely in 2015, given that RBI has ‘frontloaded’ easing and the Governor clearly indicated at the press conference that he has “used up available space” (on inflation).”
In addition to the 50bps rate cut, RBI also finally announced a phased increase in the debt limits for foreign investors to 5% of  outstanding stock by March 2018. www.live.anz.com (ATI)