Indian central bank holds interest rates unchanged

20:24, December 16, 2010      

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India's central bank, Reserve Bank of India (RBI), maintained key short-term interest rates and cash reserve ratio at current levels on Thursday, and announced more measures to ease tight liquidity.

RBI touched the pause button on interest rates for the first time after raising repo and reverse repo rates for six times in a row this year.

The repo and reverse repo rates will be kept at 6.25 percent and 5.25 percent with cash reserve ratio at 6 percent.

RBI permanently cut the statutory liquidity ratio of scheduled commercial banks from 25 percent of their net demand and time liabilities to 24 percent with effect from December 18.

The central bank also vows to purchase 480 billion rupees of government securities via open market operation auctions in the next month to ease liquidity deficit in the system.

A major challenge for RBI has been liquidity management as Indian economic growth needs liquidity support, said RBI.

Domestic economic growth momentum remain strong and indicators like industrial production and purchasing managers index reinforce its projection of 8.5 percent of real GDP growth in the current fiscal year, said RBI at mid-quarter monetary policy review.

Inflationary pressures persist from both domestic demand and higher global commodity prices with the decline of food price inflation slower than expected, said RBI.

Earlier, RBI has introduced several measures to channel money into the banking system such as additional liquidity adjustment facility and purchase of government securities.

Source: Xinhua
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