The Reserve Bank of India (RBI) said on Saturday it was cutting its two key short-term interest rates by 100 basis points each, taking its main lending rate to 6.5 per cent, the lowest in 2- years.
The reverse repo rate, the rate at which the central bank absorbs excess cash from the system, falls to 5.0 per cent from 6.0 per cent, its lowest in more than three years.
Both reductions are effective from Monday.
The main lending rate, or repo rate, has now been cut by 250 basis points since Oct. 20, when the Reserve Bank of India made its first rate reduction in more than four years to shield the economy from the global financial crisis.
This 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.
The central banks said it was also taking other steps to improve liquidity and shore up economic activity.
(Reporting by V. Ramakrishnan and Swati Bhat; Editing by John Mair)