MUMBAI, Dec 6: India’s central bank on Saturday slashed its two key short-term interest rates by a full percentage point each to stimulate an economy hit by the global recession and shaken further by the Mumbai attacks.

The Reserve Bank of India reduced its repo rate — the rate at which it lends to commercial banks -- to 6.5 per cent and its reverse repo rate — the rate at which it borrows overnight — to 5.0 per cent.

“The measures are to arrest the downturn in the economy and revive growth,” said the bank’s governor, Duvvuri Subbarao.

“Business confidence has been affected and corporate credit dented,” he told a news conference.

The rate cuts -- the third by the bank in less than two months — were seen as part of a wider stimulus package expected to galvanise India’s trillion-dollar economy which has been slowing significantly.

“We still see uncertain global conditions which will impact us domestically,” said Rakesh Mohan, a bank deputy governor.

Government officials said the stimulus package could come in the next few days. Reports say the relief package -- aimed at helping sectors hit by a slump in domestic demand such as the auto industry — could total $15 billion.

“Our measures to lower rates should send a direct and decisive signal to banks to lower their lending rates,” Subbarao said, referring to the lending paralysis that has gripped India in the wake of the global credit crunch.

Several banks said after the announcement they would soon cut both lending and deposit rates.

“These measures will advance growth for India,” said Rupa Rege Nitsure, an economist at the state-run Bank of Baroda.

—AFP