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India's GDP growth drops to 6-year low, fueling rate-cut expectations

India's economic growth unexpectedly dropped to its lowest level in more than six years in the April-June quarter, boosting the chances of further interest rate cuts in the coming months.

The country's real GDP expanded at an annual rate of 5.0% in the first quarter of fiscal year 2019-2020, down from 8.0% in the year-ago period and lower than the 5.8% expansion in the previous quarter.

The consensus estimate from economists polled by Econoday was for a 5.7% expansion in the second quarter.

Growth in the manufacturing sector weakened to an annual rate of 0.6% from 12.1% in the prior-year quarter. Growth also sharply slowed in the construction and agriculture, forestry and fishing sectors.

The latest quarterly GDP print was the weakest since a 4.3% expansion in the fourth quarter of fiscal year 2012-2013, according to data from the Ministry of Statistics and Programme Implementation.

Another unexpectedly weak quarter of growth strengthens the case for further easing of fiscal and monetary policy in the remainder of 2019, according to analysts at Capital Economics, who said that the "deepening downturn should be taken seriously."

"The Reserve Bank of India will feel vindicated in its dovish shift this year and will almost certainly add to the 110 [basis points] of policy rate cuts introduced so far," the analysts led by Chief Asia Economist Mark Williams said in a note.

Earlier in August, the central bank made its fourth rate cut this year, lowering its key interest rate by 35 basis points to a nine-year low of 5.40%, as it flagged slowing economic growth.

The central bank also trimmed its real GDP growth projection for fiscal 2019-2020 to 6.9% from 7.0% estimated previously, with risks tilted to the downside.