India's central bank, the Reserve Bank of India (RBI), has cut interest rates for the first time in nearly five years, reducing the lending rate to 6.25%. This decision follows a decline in retail inflation to 5.22%, although it remains above the RBI's target of 4%. Governors stated that the change in policy reflects a need to spur economic growth amid sluggish consumption and manufacturing. Recent tax cuts also aim to stimulate urban spending, vital for economic revival as the country seeks to transform into a developed economy by 2044 under Prime Minister Modi's vision.
Considering the existing growth-inflation dynamics a less restrictive monetary policy is more appropriate at this current juncture,
The Reserve Bank of India (RBI) said the level at which it lends to commercial banks would be reduced by 25 basis points to 6.25%.
India's economic growth had been slowing over the past few months, largely due to a drop in urban consumption.
The RBI forecast growth of 6.7% next year.
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