Shaktikanta Das took the reins of the Reserve Bank of India in December after his predecessor resigned following a row with the government. PHOTO: AFP
The Reserve Bank of India (RBI) said the benchmark repo rate - the level at which it lends to commercial banks - would be reduced by 25 basis points to 6.25 percent.
It marked the first interest rate decision under new bank chief Shaktikanta Das, an ally of Modi who was appointed in December after his predecessor, Urjit Patel, quit following a public spat with the administration over alleged government interference.
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The government was believed to be unhappy with the RBI over a number of issues, including its apparent reluctance to cut rates.
India's finance ministry had reportedly been pressuring the bank to enact policies to help spur growth ahead of the elections, when Modi will run for a second term.
On Wednesday, a key economic advisor to Modi called on the RBI to slice rates to help boost consumption and investment.
Rajiv Kumar, vice chairman of government think-tank NITI Aayog, said the bank should act to help spur "higher growth rates".
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Data showed the economy expanded 7.1 percent on-year in July-September, down from 8.2 percent in the previous quarter.
Thursday's cut surprised the majority of analysts who had expected rates to be held. Thirty two out of 43 economists surveyed by Bloomberg News had predicted no change.
The RBI raised rates twice last year over concerns about inflation.
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