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India's central bank cuts interest rate

March 19, 2013

Reserve Bank of India. - File Photo
Reserve Bank of India. - File Photo

MUMBAI: India's central bank cut its main interest rate by 25 basis points on Tuesday – its second such reduction this year – in an effort to jumpstart the slowing economy.

After meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said that the benchmark repo rate, at which it lends to commercial banks, would fall to 7.50 per cent, as predicted by most economists.

The cash reserve ratio – the percentage of deposits banks must keep with the central bank – has been kept unchanged.

The RBI's rate-cut decision was widely expected by economists and business leaders, who have been calling for lower borrowing costs to help the economy, which grew at just 4.5 per cent in the quarter to December.

Despite ongoing concerns about inflation, the RBI's latest cut comes after measures from India's finance minister P. Chidambaram in his budget last month.

He pledged to cut a gaping fiscal deficit in a bid to avert a damaging credit ratings downgrade and help revive sustained growth, and this week he said the bank should “take comfort” from the government's efforts.