India slashes rates to shore up growth

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MUMBAI, Dec 6 (Reuters): The Reserve Bank of India Saturday slashed its key short-term interest rates by one percentage point to boost growth and shore up investor confidence amid signs of economic slowdown and in the wake of deadly attacks in Mumbai.
The RBI reduced its key lending rate, or repo rate, by 100 basis points to 6.5 per cent, its lowest rate in two and a half years, with effect from Monday.
The reverse repo rate, the rate at which the RBI absorbs excess cash from the system, falls to 5.0 per cent from 6.0 per cent, its lowest in more than three years.
"Industrial activity, particularly in the manufacturing and infrastructure sectors, is decelerating," RBI Governor Duvvuri Subbarao told a news conference.
Subbarao said the central bank would closely monitor developments in global and domestic financial markets and would take swift and effective action as appropriate.
"The Reserve Bank's policy endeavour will be to minimise the negative impact of the crisis and to ensure an orderly adjustment," he said.
The main lending rate has now been cut by 250 basis points since Oct. 20, when the RBI made its first rate reduction in more than four years to shield the economy from the global financial crisis.
Saturday's decision was the first change in the reverse repo rate since July 2006.
The cash reserve ratio, the proportion of deposits banks must keep with the central bank, was left unchanged at 5.5 per cent.
Expectations of rate reductions have mounted ever since last week's attacks in Mumbai in which gunmen brought the business district to a standstill as they holed up in two luxury hotels and a Jewish centre, killing 171 people.