India central bank makes surprise interest rate cut

India’s central bank unexpectedly lowered interest rates and, as anticipated, shifted its stance to “neutral” from “calibrated tightening” to boost a slowing economy after a sharp fall in the inflation rate. The monetary policy committee (MPC) of the Reserve Bank of India cut the repo rate by 25 basis points to 6.25%, as predicted by only 21 of 65 analysts polled by Reuters. Most polled respondents expected the central bank to only change the stance, to neutral.

Four of six members of the MPC voted to cut the rates, while all six voted for a change in the stance.

“Investment activity is recovering but supported mainly by public spending on infrastructure,” the MPC said in a statement. “The need is to strengthen private investment activity and buttress private consumption.”

Rupa Rege Nitsure, chief economist at L&T Financial Services, called the central bank moves “the perfect policy response in the current circumstances.”

Indian shares pared gains while 10-year bond yields slid 5 basis points after the surprise rate cut.

The Indian rupee weakened to 71.69 to the dollar immediately after the announced but strengthened soon after to 71.42.

The NSE index was up 0.04% at 11068.05 while the 10-year benchmark government bond yield fell to 7.51% from Wednesday’s close of 7.56%.

India’s last rate cut, to 6.00%, was in August 2017.

Also, in Manila, the Philippine central bank kept its benchmark interest rate steady for a second straight meeting , saying inflation risk had fallen on lower crude oil and food prices.

The Bangko Sentral ng Pilipinas kept the rate on its overnight reverse repurchase facility The central bank paused its tightening cycle in December to allow its five straight previous rate increases, totalling 175 basis points, to work their way into the economy.

The rate increases appear to be having their desired effect as inflation has started to cool since it hit a near-decade peak of 6.7% in September and October last year.

The decision to stay on hold was based on the central bank’s view that lower oil costs and stabilisation in food prices would bring inflation under control and could see it back on target as early as March, when it could fall to below 4%.