The Reserve Bank of India said it dropped its short-term lending rate for banks to 5%, a cut of 50 basis points, to maintain liquidity and encourage lenders to make loans. The central bank also dropped the interest rate at which it borrows from financial institutions to 3.5%. "There is evidence of a slowing in economic activity," said D. Subbarao, governor of the central bank. "We expect that the reduction in rates will further encourage banks to provide credit. The RBI will continue to maintain ample liquidity in the system."
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