RBI rate cut will stimulate economy: Jayant Sinha

The announcement of India's central bank on Tuesday to cut its key lending rate by 25 basis points will provide a good stimulus to the economy, Minister of State for Finance Jayant Sinha said.

"We believe that with rate cut, it will be a really good stimulus for the economy," Sinha said here.

The repurchase rate, or the short-term lending rate for commercial banks on loans taken from the Reserve Bank of India (RBI), stands lowered at 6.5 percent from 6.75 percent. The reverse repurchase rate, or the short-term borrowing rate, has been adjusted upward to 6 percent from 5.75 percent.

The changes were carried out in the monetary policy for the current fiscal announced by RBI Governor Raghuram Rajan.

"RBI's announcement of 25 basis points is in line with direction in which the government would like the economy to move," said Economic Affairs Secretary Shaktikanta Das.

"Consequent to all measures and RBI's announcement, banks will need to do more transmission of reduction in policy rates by RBI," he added.

"Inflation has evolved along the projected trajectory and the target set for January 2016 was met with a marginal undershoot," Rajan said in his policy statement.

He added that retail inflation was expected to decelerate modestly and remain around 5 percent in this fiscal.