MUMBAI: India's central bank aggressively cut interest rates on Tuesday in a bid to kickstart economic growth, following a sharp drop in inflation.
The Reserve Bank of India (RBI) surprised analysts by lowering the benchmark repo rate -- the level at which it lends to commercial banks -- to 6.75 percent from 7.25 percent with immediate effect.
Economists had been expecting a cautious 25-basis-point cut, but were presented with a 50-basis-point reduction.
"In India, a tentative economic recovery is underway, but is still far from robust," RBI governor Raghuram Rajan wrote in the bank's monetary policy review.
"Investment is likely to respond more strongly (and boost domestic demand) if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow.
"Therefore, the Reserve Bank has front-loaded policy action by a reduction in the policy rate by 50 basis points," he added.
Pressure had been growing for a reduction in interest rates after Rajan kept them on hold last month after three cuts earlier this year.
India's economic growth slowed to seven percent in the first quarter of the current financial year, matching China and outpacing most major economies, but down from 7.5 percent in the previous quarter.
Prime Minister Narendra Modi's business-friendly government was keen for a further cut as it seeks to quicken the pace of growth in Asia's third-largest economy.
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