MUMBAI, Aug. 7 (Xinhua) -- Accommodative stance of the India's Central Bank to cut policy rate by 35 basis points failed to usher bullish tunes on the bourses as the dovish language of its governor on economic outlook poured cold water over the market sentiment that dragged the benchmark equity indices by 0.8 percent to end the day.
"The downward revision of the FY20 GDP growth rate to 6.9 percent with downward risk is a dovish signal," said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services, a domestic investment services company.
"Domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks," the central bank release said.
Financial markets have turned volatile on the back of the monetary policy stances of major central banks and the uncertainty generated by trade and geopolitical tensions, said India's Central Bank, the Reserve Bank of India (RBI) Governor Shaktikanta Das, at the post policy media briefing on Wednesday.
"Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture," the release by RBI said.
The RBI industrial outlook survey released on Wednesday also showed muted expansion in demand conditions in the July-September quarter while other high frequency indicators too suggested weakening of both domestic and external demand conditions.
The concerns over India's economic growth assumes significance as the country dropped its ranking to seventh place in GDP ranking as per the recent World Bank data for 2018.
The World Bank dropped India one notch, to seventh as its gross domestic product (GDP) came at 2.72 trillion U.S. dollars for the year 2018. The drop is a jolt to Indian prime minister's vision of making India a 5 trillion U.S. dollar economy by 2024.
Global economic slowdown is playing on the minds of central banks across the world and India's Reserve Bank of India was ahead of the curve by cutting 110 basis points so far this year taking its repo-rate to a 9-year low of 5.4 percent, said an analyst.
RBI decision to cut rate also collided with several others central banks too lowering their key rates on Wednesday.
Last week, the U.S. Federal Reserve cut their key rates for the first time since 2008 to tackle growth concerns considering the global trade conflict.
Going beyond the rate cut, Rupa Rege Nitsure, chief economist, L&T Financial Holdings - financial subsidiary of India's largest engineering and construction firm, said "RBI has done the maximum that a central bank can do in the current phase of economic slowdown."
The weight of structural factors has increased in India's ongoing slowdown and it is now absolutely essential for the India's central and state governments to work in partnership to resolve some of the sticky sector-specific issues and concerns, she said.
