India cuts rates by 25 basis points to seven-year low

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Reserve Bank of India (RBI), the country’s central bank, cut interest rates Wednesday for the first time in almost a year amid sluggish growth and record-low inflation.

RBI announced to cut the benchmark repo rate, the level at which it lends to commercial banks, by 25 basis points to six percent, a near seven-year low. The interest rate last sat at six percent in September 2010.

Indian Finance Minister Arun Jaitley /AFP Photo

Indian Finance Minister Arun Jaitley called for a reduction in the key policy rate in June after retail inflation fell sharply from 2.18 percent to 1.54 percent, the lowest since the government started tracking it in its current form in 2012.

The decision of the RBI is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index inflation of 4 percent while supporting growth, the RBI said.

The government welcomed the move and called it "an important step necessary to converge toward the appropriate real monetary conditions for sustained growth consistent with India’s potential and for stable, moderate inflation".

However, Madan Sabnavis, chief economist at CARE Ratings, had expected the key interest rate to remain unchanged and surprised by the cut.

"The fundamental problem is of demand. The industry won't invest just because there has been a 25 bps cut," he said.

(Source: AFP, Xinhua)