India’s central bank on Thursday lowered its key interest rate by a quarter of a percentage point to 6.25 percent, a step that is expected to boost the economy.
The interest rate is what the federal bank charges on lending to commercial banks. Lower interest rates help borrowers but can also spur inflation. The Reserve Bank of India judged the consumer inflation rate, at 2.2 percent in December, safe for loosening monetary policy.
In a bimonthly review of the economy released Thursday, the central bank forecast India’s economy will expand by 7.4 percent in 2019-20, up from 7.2 percent in this fiscal year. India’s financial year runs from April to March.
The central bank said growth was mostly supported by government spending on infrastructure but investment activity was recovering.
The central bank cut interest rate for the first time in 17 months. The bank had hiked rates twice in quick succession, in June and August last year, fearing an increase in inflation rate.
“Headline inflation is projected to remain soft in the near term, reflecting the current low level of inflation and the benign food inflation outlook,” it said.