Finance ministry welcomes RBI rate cut as inflation drops

The finance ministry welcomed an inter-meeting rate cut by Reserve Bank of India (RBI) on Thursday, saying it reflected easing inflation concerns and vindicated the government's efforts to achieve economic growth without stoking inflation.

In a surprise move ahead of its monetary policy review on February 3, the central bank announced a 25 basis points cut in repo rate to 7.75 per cent. RBI also adjusted reverse repo rate to 6.75 per cent.

Reacting to the development, Deputy Finance Minister Jayant Sinha told Reuters that the quarter-point rate cut would mark an "inflection point" after a period of high interest rates.

Sinha said RBI decision was driven by declines in both actual and expected inflation, and not by any concerns that India's economic recovery was losing traction.

"The economy is picking up momentum," he told Reuters in a brief telephone interview. "The signs are very positive that economic momentum has rebounded. We are likely to see a significant acceleration in growth."

Sinha, a former McKinsey consultant, is a key advocate of supply-side economics in Prime Minister Narendra Modi's team. He has called for shifting spending to investment and away from welfare entitlements that have in the past driven up prices.

"The goal is to achieve faster growth which is non-inflationary," he told Reuters.

(Reuters)