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India Central Bank makes 3rd rate cut this year
June 2, 2015, 6:04 am

Indian Finance Minister Arun Jaitley (C) and Reserve Bank of India (RBI) governor Raghuram Rajan (R) attend the Central Board Meeting of RBI in New Delhi, India, March 22, 2015 [Xinhua]

Indian Finance Minister Arun Jaitley (C) and Reserve Bank of India (RBI) governor Raghuram Rajan (R) attend the Central Board Meeting of RBI in New Delhi, India, March 22, 2015 [Xinhua]

The Central Bank of India cut its key interest rate Tuesday by a quarter percentage point in an anticipated move that adds impetus to government efforts to revive Asia’s third-biggest economy.

This was the third rate cut this year by the Reserve Bank of India (RBI).

RBI lowered the repo rate to 7.25 per cent on Tuesday.

The decision to lower the rate follows declines in India’s stubbornly high inflation.

The Indian Statistics office in New Delhi on Friday published data that said India’s gross domestic product grew by 7.5 per cent in the fiscal fourth quarter, beating estimates.

The latest figures show India is growing faster than China, the result of a new method of calculating GDP. The Chinese economy grew by 7 per cent in the March quarter.

The Indian statistics department has started measuring the gross domestic product by including indirect taxes.

Many commentators and economists, including the Central Bank governor Raghuram Rajan and the government’s Chief Economic Advisor Arvind Subramanian, however, have warned against rushing in to use the new numbers to craft policy.

“I am puzzled by the new GDP growth numbers. The revised numbers show GDP growth rose from 4.7 per cent to 5.1 per cent for 2012-13 and from five per cent to 6.9 per cent for 2013-14. This means acceleration in GDP growth of 1.9 percentage points in 2013-14, just by comparing the new numbers across time. This is mystifying because these numbers, especially the acceleration in 2013-14, are at odds with other features of the macro economy,” Subramaniam said in a recent interview to Indian daily, the Business Standard.

Earlier this year in February, Rajan also warned it would be “premature to take a strong view” based on the updated data.

“I don’t want to say anything about the numbers until we understand them better,” said the governor of the Central Bank of India.

 

TBP

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