RBI slash repo rate by 25bps to 7.5%--- a surprise move from central bank.

The government welcomed a surprise interest rate cut on Wednesday as good news for the economy that would not pose any inflationary risks.

Both the rate cut and last weekend's annual budget were "consistent with non-inflationary growth",

The Reserve Bank of India (RBI) lowered its policy repo rate by 25 basis points to 7.5 percent on Wednesday, its second inter-meeting cut this year on the back of easing inflation and what it said was the "weak state" of parts of the economy.

The cut comes days after the government and the Reserve Bank of India agreed to formally adopt inflation targeting, although the central bank had been effectively using targets since early 2014.

Analysts said the RBI's rate cut appeared to give backing to the government's fiscal plans and its pledge to exercise responsibility despite a delay in meeting a fiscal deficit target of 3 percent of gross domestic product by a year to 2017/18.

Indian bonds and rupee rose sharply after the cut. The benchmark 10-year bond yield dropped to as much as 7.61 percent, its lowest level since July 15, 2013. The partially convertible rupee gained to as much as 61.65 to the dollar, its strongest level since Feb. 4.