D. Subbarao, governor of the Reserve Bank of India, said another reason for the decision to lower the repo rate -- the rate at which the RBI lends to banks -- was that growth had slowed. However, the bank left the cash-reserve ratio unchanged at 4 percent.
"Based on an assessment of the current and prospective macroeconomic situation, we have decided to reduce the policy repo rate under the liquidity adjustment facility [LAF] by 25 basis points from 7.5 percent to 7.25 percent," Subbarao said.
He said the bank's assessment is that activity will remain subdued in the first half of this year with a modest pickup in the second half, subject to appropriate conditions developing.
While inflation eased by March coming "close to the Reserve Bank's tolerance threshold, it is important to note that food-price pressures persist and supply constraints are endemic," the bank said on its website.
Economic growth was forecast to be modest in the current fiscal year. Growth in the previous year was 5 percent, which was the lowest in a decade.