Central bank action will spur investment, growth: Jaitley

Welcoming the Reserve Bank of India's decision to cut short-term lending rates by 50 basis points, Finance Minister Arun Jaitley said on Tuesday

this will support growth, while showing that inflationary pressures were now moderating.

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.

"Today's rate cut will boost investment and growth," Jaitley said, soon after the 4th 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.

"We are looking forward now to the transmission of these cuts, which will help boost economy and confidence," the finance minister added.

The central bank cut by 50 basis points its repurchase rate, or the interest charged on short-term borrowings, to 6.75 percent, which automatically cut the indexed reverse

repo rate, or the interest payable by the central bank on short-term deposit, to 5.75 percent.

"The government is committed to meet its fiscal deficit target to consolidate the gains achieved in reducing inflation," the finance minister said.

On Monday also, addressing Indian Banks' Association's annual general meeting in Mumbai, Jaitley said he is confident of maintaining fiscal deficit at 3.9 percent in

the current financial year.

In his February budget, Jaitley had extended the target deadline for controlling fiscal deficit to three percent, reasoning that insistence on a timetable to contain the deficit would harm growth prospects.

The targets for the next three years have been set at 3.9 percent for 2015-16, 3.5 percent for 2016-17, and 3.0 percent for 2017-18.

RBI Deputy Governor Urjit Patel said on Tuesday that the current processes of fiscal deficit control and tepid capacity utilisation that holds hopes for higher growth

would both help to lower inflation.

"Fiscal deficit reduction over the medium-term is on track, which is good for inflation control," Patel said following the RBI monetary policy announcement.

Speaking about the rupee-denominated bonds, Economic Affairs Secretary Shaktikanta Das said there was not only an appetite for such commercial paper in the global

markets, but will also shied the corporate sector from currency fluctuations.

"This is also the first time that the foreign portfolio investors can invest in state-governments backed securities, which was a demand raised by state governments

for a long time," Das said, adding that could translate into an inflow of Rs.51,000 crore.