The Reserve Bank's decision to cut lending rate by 0.50% will encourage investments, finance minister Pranab Mukherjee said today, while assuring the government will also take additional steps to boost growth and control price rise.
"The growth, which has weakened in past months, should now improve," he said.
"The monetary policy announcements should help in investment revival and contribute to strengthening of business sentiments. In the coming weeks we will take some additional steps to further reinforce focus on growth," Mukherjee told reporters here.
In its annual monetary policy statement for 2012-13, RBI, after a gap of three years, cut interest rate by 0.50 % making credit cheaper.
After clocking over 8% economic growth for two years, India's GDP expansion is estimated to have declined to 3-year low of 6.9% in 2011-12 on account of high cost of borrowing that slowed investments.
RBI had hiked policy rates 13 times between March 2010 and October 2011 to control persistently high inflation.
It has projected the GDP growth for this fiscal at 7.3%, which is lower than the government estimates of 7.6% for the period.
Mukherjee said moderation of core inflation rate for four months in a row, coupled with the sharper decline in inflation for manufactured products from 7.6% in December to 4.87% in March, has facilitated the change in monetary policy stance.
"However food and primary inflation has shown signs of hardening. This is a cause for some concern. We intent to continuously monitor the situation and take the required steps to manage the short term supply constraint for those food items which contribute inflation," he said.
Mukherjee said the government will do everything possible to maintain price stability.