RBI slashes crucial interest rate as government moves towards general election

Referring to slowing economic growth and sharply lower inflation, the RBI monetary policy committee trimmed its benchmark repo rates to 6.25 percent

New Delhi: The Reserve Bank of India (RBI) slashed its benchmark interest rate by 25 basis points on Thursday, in an effort which might give impetus to Prime Minister Narendra Modi in his final push for economic growth ahead of upcoming General Elections. Referring to slowing economic growth and sharply lower inflation, the RBI monetary policy committee trimmed its benchmark repo rates to 6.25 percent.

An impetus to the government

Pointing out that there was a chance for future cuts, the committee also changed its monetary policy stance to "neutral" from the previous outlook of "calibrated tightening."

"The path of inflation has moved downwards significantly," Shaktikanta Das, the new governor, said after the announcement on Thursday. "This has opened up space for policy action. The need is to stimulate private investment activity, and private consumption needs to be buttressed."

He added that "it is vital to act decisively and in a timely manner to address growth" given that the inflation target had been met.

Monetary easing just three months after Patel's resignation

Urjit Patel, the former RBI governor, resigned three months back amid widening differences with the Modi government over various economic and regulatory issues, including New Delhi's perception that the RBI's monetary policy was too tight.

India's inflation rate in the past six years has fallen from an average of close to 10 percent annually to 3.6 percent the last financial year, with headline inflation at 2.19 percent in December.