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.

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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.