This month, the Ressreve Bank of India cut a key interest rate by a quarter percentage for the third time this year, to support government efforts to boost growth. Previous such cuts were effected in January and March. Per this policy, commercial banks can now borrow from the central bank at 7.25 percent.
The Washington Post says that the cut comes after the Indian economy registered 7.5 percent growth in the January to March quarter compared with a year earlier. That made India the world’s fastest growing major economy, overtaking China’s 7 percent growth in the same quarter.
India’s Chief Economic Advisor Arvind Subramanian told reporters, “These cuts are consistent with the trends in the economy, including strongly declining inflation, contained current account deficit and ongoing strong fiscal discipline.”
However, the central bank left all other policy instruments such as the cash reserve requirement unchanged at 4 percent and the Statutory Liquidity Ratio at 21.5 percent.
“With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate,” Reserve Bank of India Governor Raghuram Rajan said.