India's central bank on Tuesday decided to leave its key rates unchanged as widely expected citing stubbornly high inflation. The bank unexpectedly reduced the statutory liquidity ratio by 1 percent.
The Reserve Bank of India, or RBI, retained the repo rate at 8.00 percent and the reverse repo at 7.00 percent. The repo rate is the rate at which the central bank lends to banks and the reverse repo rate is the rate at which the RBI borrows from banks.
"In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," it said.
The central bank also kept cash reserve ratio unchanged at 4.75 percent. The RBI has reduced the CRR in January and March this year.
It reduced the statutory liquidity ratio (SLR) of scheduled commercial banks to 23 percent from 24 percent, with effect from August 11.
Managing liquidity within the comfort zone remains an objective and the bank will respond to liquidity pressures, including by way of open market operation, the bank added.
The bank said the latest policy actions are expected to anchor inflation expectations and maintain liquidity to facilitate smooth flow of credit to productive sectors to support growth.
Citing trends in food inflation and global commodity prices, the RBI lifted the baseline projection for WPI inflation for March 2013 to 7 percent from 6.5 percent. At the same time, it downgraded 2012-13 growth estimate to 6.5 percent from 7.3 percent.
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