NEW DELHI: Finance Minister Arun Jaitley welcomed the Reserve Bank's move cutting the key interest rate by 0.5 percent, nudging banks to transmit the benefit to borrowers so as to boost investments and the economy.

The rate cut, he said, will reduce the cost of funds and help economic recovery.

"This decision of the RBI will significantly provide policy support to the real economy and help in the recovery process. We are looking forward now to the transmission of these cuts which will effectively help to boost confidence and investment. They will also help to realise the economy's medium term potential growth rate," Jaitley told reporters.

RBI in its fourth bi-monthly monetary policy for the current fiscal reduced the lending rate by 0.5 per cent with a view to boosting growth. It has cut the benchmark lending rate by a total of 1.25 per cent since January.

As regards the price situation, Jaitley said: "There will be a need to have a constant vigilance now on the inflation front. This decision of the RBI actually implies that inflation pressure has moderated significantly and is now within the comfort zone."

The government, he stressed, was fully committed to meeting the fiscal deficit target in order to consolidate the gains achieved by the contained inflation.

On RBI's decision to relax portfolio investment norms, Jaitley said, it will allow Indian corporates "to raise external commercial borrowings (ECBs) through rupee-denominated offshore bonds with no end use restrictions. This would enable them with an additional source of resources."

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