The Reserve Bank of India (RBI) cut its key short-term rates by 25 basis points each on Tuesday to infuse more liquidity into the system and stimulate lending growth.
The repo rate, at which the Reserve Bank of India infuses cash into the banking system, was 4.75 percent from the 5 percent. The reverse repo rate, at which it absorbs excess cash from banks, was brought down to 3.25 percent from 3.5 percent.
However, RBI kept the cash reserve ratio (CRR) unchanged at 5 percent.
On Monday, a reserve bank-authorized survey lowered the country's economic growth rate projection for the current 2009-2010 fiscal starting from April 1st to 5.7 percent, down from 6 percent estimated earlier and significantly lower than 6.5 to 7 percent indicated by Prime Minister Manmohan Singh.
As regards 2008-09, the RBI-authorized survey said the growth rate could be 6.6 percent, down from the earlier projection of 6.8 percent.
The RBI survey's economic growth forecast for 2009-10 comes after estimates projected by World Bank and International Monetary Fund, which were between 4 and 5.25 percent.
Analysts said the absence of a fiscal stimulus until at least June when India's new government takes office may have prompted the bank to cut rates to support economic growth.
The RBI has now cut its short-term lending rate by 425 basis points in six steps since Oct. 20, 2008 as the global economic crisis has hit Asia's third-largest economy harder than expected.
However, the effect of this rate cut has been put into question by local media since Indian banks so far has not cut their lending rates in aggressive manner for personal and home loans following previous policy rate cut by RBI.