Jan 15, 7:47 AM EST

India's central bank cuts key interest rate by quarter point to 7.75 percent in surprise move


Business Video

Latest Business News
Net profit slumps at electronics giant Philips due to lower sales, restructuring costs

Small businesses hunker down, cope during big winter storm in Northeast, but some also profit

A huge Northeastern snowstorm shuts down some businesses but pumps up sales at others

Business Highlights

Travel scramble begins as storm descends on the East Coast; thousands of flights canceled

Multimedia
A district summary of the Beige Book
Measuring economic stress by county nationwide
Mall malaise: shoppers browse, but don't buy
Unemployment by the numbers
Family struggles with father's unemployment
Saying an affordable goodbye
Hard times hit small car dealer
Latest Economic News
A huge Northeastern snowstorm shuts down some businesses but pumps up sales at others

France, desperately seeking jobs and growth, debates bill to free up labor rules

Germany's Ifo survey of business optimism rises for third straight month, beats expectations

Afghanistan faces economic crisis as international aid money leaves and growth stalls

European Central Bank official denies lower euro was prime consideration behind stimulus

Ukraine head of reforms: reducing corruption top priority as country seeks another bailout

Moody's drops Atlantic City bond rating 6 notches after New Jersey appoints emergency managers

Top official: Russians will 'eat less' to support Putin in face of Western sanctions

SKorea economic growth slows to 2.7 percent in 4Q, weakest expansion in 6 quarters

ECB to pump money into economy through monthly bond purchases to try to revive economy

Buy AP Photo Reprints
Interactives
Greece's Debt Threatens to Spread
State budget
gaps map
Auto industry problems trickle down, punish Tennessee county
Women give old Derby hats a makeover in tough economy
S.C. town deals with highest unemployment in South
How mortgages were bundled and sold as securities
Tracking the $700 billion financial bailout
Tracking the year's job losses
State-by-state foreclosures since 2007
Credit crisis explained
Presidents and their economic legacies
Lexicon of the financial crisis
Americans' addiction to debt

NEW DELHI (AP) -- The Reserve Bank of India cut its key interest rate Thursday by a quarter percentage point in a surprise move that adds impetus to government efforts to revive Asia's third-biggest economy.

The decision to lower the rate to 7.75 percent, announced more than two weeks before the central bank's planned monetary policy review on Feb. 3, follows several months of declines in India's stubbornly high inflation.

India's short-term lending rate has been held at 8 percent since January 2014 to counter inflation, which hit double digits last year.

But helped by lower oil prices, "both near-term and longer-term inflation expectations have eased to single digits for the first time since September 2009," the bank's governor, Raghuram Rajan, said in a statement. In December, inflation was 5 percent.

The rate cut signals a "victory over the inflation dragon," fund manager Tushar Pradhan at HSBC Global Asset Management said in a statement.

The rate cut adds to optimism that India is recovering from the economic malaise that helped catapult Prime Minister Narendra Modi into office in May.

A U.N. report on Wednesday predicted the country's economy would grow by 6.4 percent during this fiscal year, up from 4.7 percent in the fiscal year ended March 2014. The Finance Ministry has predicted growth in the current fiscal year of about 5.5 percent.

The central bank governor also noted "the government has reiterated its commitment to adhering to its fiscal deficit target" of 4.1 per cent of gross domestic product this year, as it prepares next year's budget for presentation in February.

The news boosted India's currency and stock market. The Sensex stock index was up 2.7 percent and the dollar fell to 61.63 rupees from 62.16 rupees Wednesday.

Finance Minister Arun Jaitley, who was pressing the bank to lower interest rates, said the move would "lead to more money in the hands of the consumer for greater spending" and "will certainly help in reviving the investment cycle the government is trying to restore."

Industry groups and analysts were also enthused, even while noting one rate cut was too marginal to have much impact on the economy.

The rate cut signals the government and the RBI are "acting in concert to harness demand and take the economy to a higher orbit of growth," said Chandrajit Banerjee, director general of the Confederation of Indian Industry.

The central bank said that as it considers further rate cuts, it will want to be sure that inflation continues to decline and that supply bottlenecks are cleared in the electricity, mining and infrastructure industries.

---

Follow Katy Daigle on Twitter at twitter.com/katydaigle

© 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.