RBI rate cut important step for sustained growth: FinMin

The finance ministry said the RBI's decision to cut key policy rate by 0.25 percent is an important step to achieve sustained growth consistent with moderate inflation and India's potential.

The Reserve Bank, in its third bi-monthly monetary policy of the fiscal, reduced the repo rate after a 10-month gap.

The new repo rate at 6 percent is the lowest in 6.5 years. The last rate cut was effected in October 2016.

RBI Governor Urjit Patel said the central bank has maintained the economic growth projection at 7.3 percent for the current fiscal.

RBI Credit Policy: How Interest Rates Work

Commenting on the central bank's decision, Economic Affairs Secretary Subhash Chandra Garg said the government welcomes the repo rate cut.

The government has taken note of the statement of the Monetary Policy Committee (MPC) and its assessment of the inflation and growth outlook, he added.

"We welcome the 25 bps cut in the repo rate as an important step necessary to converge towards the appropriate real monetary conditions for sustained growth consistent with India's potential and for stable, moderate inflation," Garg said.

The government had been pitching for a rate cut to boost economic growth amid retail inflation falling to a historic low of 1.54 percent in June.

The monetary policy statement was arrived at after a two- day meeting of the MPC headed by RBI Governor Urjit Patel.

The MPC decided to keep the policy stance neutral and to watch incoming data with a view to keeping headline inflation close to 4 percent.

It has stressed on the urgent need to reinvigorate private investments, clear infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana. The RBI said it is working in close coordination with the government to resolve large stressed corporate borrowings and recapitalise public sector banks.