India's Central Bank Cuts Rates, Expressing Concerns Over Economic Growth

India's central bank has cut its benchmark interest rate by 25 basis points to 6.25%, citing concerns over the impact of a restrictive monetary policy on economic growth.

The move, announced in the minutes of the Reserve Bank of India's (RBI) monetary policy committee meeting held in February, represents the first rate cut in nearly five years.

All six members of the committee voted unanimously in favor of the cut, led by Governor Sanjay Malhotra.

Malhotra stated that the lower policy rate was "more appropriate at the current juncture" as inflation was aligning with the RBI's target of 4%. He also expressed optimism that household consumption, investments, and overall demand would improve with the easing, supported by strong agricultural growth and government measures.

Inflation eased to a five-month low in January, raising hopes of further rate cuts. The RBI projects inflation to average 4.2% in the next fiscal year.

Committee member Saugata Bhattacharya warned that the RBI's hawkish stance could become "excessively restrictive" given the softening inflation trajectory and increase the risk of dampening economic growth.

Analysts anticipate further easing in the coming months as economic growth slows to a four-year low. However, Bhattacharya cautioned that rate cuts could increase currency volatility, although this was not considered a major concern.

Five of the six committee members are new appointments, including Malhotra and Deputy Governor M. Rajeshwar Rao. The government has yet to announce a successor to Michael Patra, who retired last month.

Other committee members commented on the economic outlook:

* Deputy Governor Rao emphasized the need for vigilance and flexibility due to current uncertainties.
* Rajiv Ranjan highlighted the importance of maintaining high growth momentum over the medium term.
* Nagesh Kumar expressed concern about the potential for excess Chinese manufacturing capacity to impact Indian industries.
* Ram Singh blamed subdued private consumption and overly contractionary monetary policy for the economic slowdown.