Finance Minister Arun Jaitley welcomes RBI's repo rate cut by 50 bps

FM Jaitley said that RBI's rate cut would also provide policy support, and that the govt was committed to meeting its fiscal deficit targets.

Finance Minister Arun Jaitley  (Photo: Reuters) Finance Minister Arun Jaitley (Photo: Reuters)

Finance Minister Arun Jaitley welcomed the Reserve Bank of India's 50 basis points cut in interest rates on Tuesday, saying it would boost confidence and economic growth.

The decision would also provide policy support, Jaitley told reporters, adding that the government was committed to meeting its fiscal deficit targets, while showing that the inflationary pressures were now moderating.

Earlier, the RBI cut its policy interest rate to a 4-1/2 year low of 6.75 per cent, in a bigger-than-expected move that, with inflation running at record lows, could help an economy in danger of slowing down.

The Finance Ministry had also been building pressure on RBI to cut rates, which will serve as a booster for the economy, where the GDP expansion has slipped to 7 per cent for the June quarter.

Jaitley said on Tuesday that he would reassess the official gross domestic product forecast for Asia's third-largest economy in the current fiscal year that ends next March.

The government forecasts that the economy would achieve real growth of around 8 per cent in the 2015/16 fiscal year. The pace of growth slowed by more than expected to 7 per cent in the quarter to June.

The finance minister also welcomed the decision to allow the corporate sector to issue rupee-denominated bonds in overseas markets, often called "Masala Bonds", and said it will give access to additional credit for India Inc.

Industry experts deemed that the rate cut was positive for the growth of economy and the markets

RBI Governor Raghuram Rajan, who had faced growing pressure from the government as also industry to reduce one of Asia's highest borrowing costs, said that the focus would now be to work with the government to ensure that banks pass on rate cuts further.

"Today's rate cut will boost investment and growth," Jaitley said, soon after the fourth bi-monthly monetary policy update by Reserve Bank of India Governor Raghuram Rajan, adding that the government would like to see commercial banks reciprocating with own interest rate cuts.

The reduction comes on the back of interest rates being cut thrice earlier this year by 25 basis points each.

(With inputs from Agencies)