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NEW DELHI — The Indian government announced plans Friday to lower key interest rates by one percentage point and boost spending in an effort to stimulate the economy in the face of global economic turmoil.
It was the second stimulus package announced in the past month.
Montek Singh Ahluwalia, a top official in India's Planning Commission and a key financial architect, said he hoped the economy could grow by 7 percent this year.
"The measures that the government has taken will ensure that we still have good growth in the country," he told reporters in New Delhi as he announced the stimulus package. But he warned that "it is impossible to insulate yourself completely from a major downturn in the world economy."
To free up credit, the central bank cut its cash reserve ratio — the amount of cash that banks must keep in reserve — by half a percentage point to 5 percent.
The benchmark repo rate, at which the central bank makes short-term loans to commercial banks, was cut from 6.5 percent to 5.5 percent.
The reverse repurchase rate, the rate at which it borrows from commercial banks, was cut from 5 percent to 4 percent to encourage banks to lend more to consumers.
The plan will also allow state governments to borrow up to $6 billion to fund additional infrastructure projects, and eases limits on foreign investment in Indian companies.
Ahluwalia expressed confidence in the Indian economy, while acknowledging that the country would be unlikely to continue the galloping growth rates of recent years.
India's economic growth fell to 7.6 percent last quarter — off from 9.3 percent in the third quarter of 2007.
"The average of 7 percent is something we hope to be able to achieve," Ahluwalia said.
