In its quarterly monetary policy review, the Reserve Bank of India (RBI) lowered the economic growth projection for the current fiscal to 6.5 per cent from its earlier estimate of 7.3 per cent, stating rising government expenditure poses risks to economic stability.
Its inflation forecast for the fiscal ending March, 2013 has also been raised to 7 per cent from earlier projection of 6.5 per cent.
"In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," RBI Governor D Subbarao said.
As a liquidity inducing-measure, RBI reduced the Statutory Liquidity Ratio (SLR) -- the amount of deposits banks park in government bonds -- by 1 per cent to 23 per cent, effective August 11.
The interest rates have been left unchanged for second consecutive review of the monetary policy.
The key lending (repo) rate, at which banks borrow from RBI, has been retained at 8 per cent and the cash reserve ratio (CRR) -- the amount of deposits banks keep with RBI in cash -- at 4.75 per cent.
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"The primary focus of policy remains inflation control in order to secure a sustainable growth path over the medium-term ...Lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," he said.
According to industry body CII the RBI decision tantamounts to a "missed opportunity to revive growth."
Terming the policy decision is on expected line, bankers said there is hardly any scope for cutting deposit and lending rate in view of inflation.
After initial reactions, the stock markets shrugged off the status quo on policy and tracked global cues to close 92 points higher for the day. MORE