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MUMBAI: India’s central bank cut interest rates yesterday for the first time in nine months and reduced the amount of cash banks must keep in reserve as it tried to boost investment and kick-start the flagging economy.
Responding to demands from the government and business leaders for lower borrowing costs, the Reserve Bank of India (RBI) announced a cut of 25 basis points.
But it played down the prospect of deeper interest rate cuts while inflation remains too high for comfort.
“Inflation pressures appear to have peaked. Economic activity has slowed and it needs new investment,” RBI Governor Duvvuri Subbarao said in a statement, which he read on television.
The bank also cut its cash reserve ratio by 25 basis points to four percent.
Subbarao said the move would inject Rs180bn ($3.3bn) into the banking system, encouraging commercial banks to lend.