India's central bank cuts key interest rate by quarter point

AP News
|
Posted: Jan 15, 2015 12:39 AM

NEW DELHI (AP) — The Reserve Bank of India cut its key interest rate Wednesday by a quarter percentage point to 7.75 percent in a surprise move that adds impetus to government efforts to revive Asia's third-biggest economy.

The decision, announced a full two weeks before the central bank's planned monetary policy review on Feb. 3, follows several months of declines in India's stubbornly high inflation.

India's short-term lending rate has been held at 8 percent since January 2014 to counter inflation, which hit double digits last year.

But helped by lower oil prices, "both near-term and longer-term inflation expectations have eased to single digits for the first time since September 2009," the bank said in a statement.

The rate cut adds to optimism that India is recovering from the economic malaise that helped catapult Prime Minister Narendra Modi into office in May. A U.N. report on Wednesday predicted the country's economy would grow by 6.4 percent this year, up from 5.5 percent last year.

The central bank also noted "the government has reiterated its commitment to adhering to its fiscal deficit target" as it prepares the national budget for presentation in February.