The Reserve Bank of India (RBI) also plans to conduct open market operations of up to 500 billion rupees over the next two months, one of the officials said, expanding a quantitative easing program to spur the slowing economy, Reuters reported.
These latest moves are expected to increase cash in the financial system and help push interest rates down, potentially helping borrowers where an interest rate cut has not.
“We want to make sufficient liquidity available, but we cannot open the floodgates of liquidity. It has to be done in a calibrated and measured way,” said one official who declined to be named because of the sensitivity of the matter.
The Reserve Bank of India declined to comment.
Prime Minister Narendra Modi is facing a tight re-election race in the staggered poll that began on April 11 and will end on May 19. Votes will be counted on May 23.
Economic growth slowed to 6.6 percent in the October-December quarter, the worst in five quarters, and economists see a further slowdown in January-March largely due to high interest rates and surging oil prices.
Despite cutting its key policy rate by 50 basis points this year to six percent, the RBI has struggled to get banks to reduce lending rates due to tight cash conditions and high deposit rates.
The RBI wants the real interest rate — the delta between the inflation rate and rate people pay to borrow — to ease for borrowers, a separate government official said.