Reserve Bank of India cuts rates in yet another surprise

Will India's budget ease trade difficulties?
Will India's budget ease trade difficulties?

Reserve Bank of India governor Raghuram Rajan clearly loves surprises.

The Indian central bank chief unexpectedly cut key lending rates yet again on Wednesday, just days after the government of Prime Minister Narendra Modi unveiled a new budget.

The central bank was not scheduled to issue a rate decision, and the move took economists and analysts by surprise. Stocks trading in Mumbai surged on the news.

The RBI cut the rate at which it lends to banks by 0.25 percentage points to 7.50%, only the second such cut in nearly two years. The first cut -- also unscheduled -- came in January.

Rajan said in a statement that with inflation under control, the bank felt it had room to act in support of the economy.

Modi's government released its latest budget to great fanfare last week, presenting reforms that investors hope will finally deliver sustained and rapid economic growth.

Modi has promised to end policy paralysis, reduce inflation and tackle corruption. He also pledged to establish manufacturing hubs and industrial corridors, and to improve the tax code.

India should also get a nice boost from falling oil prices, as cheap gas will give consumers some extra resources in the short-term.​

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