India’s central bank holds interest rates

MUMBAI, October 27, 2009 (AFP) – India’s central bank kept key short-term interest rates unchanged at their record lows on Tuesday, saying its priority was helping a recovery take root while keeping an eye on inflation. The repo, the rate at which the central bank lends to commercial banks, remains at 4.75 percent, while the reverse repo, the rate at which it borrows from banks, stays at 3.25 percent.

“The precise challenge which the bank faces is to support the recovery process without compromising on price stability,” Reserve Bank of India governor Duvvuri Subbarao said in the statement.

The bank did take minor action to mop up some of the excess liquidity in the banking system, which is the result of “unconventional” measures taken during the worst of the global financial crisis.

“Reversing conventional measures is not appropriate for now, but the unconventional measures can be reversed immediately,” said Subbarao after the half-yearly review of monetary policy.

To this effect, the RBI restored the statutory liquidity ratio (SLR) — the minimum share of bank deposits to be held in government bonds, cash and gold — for commercial banks to 25 percent, from 24 percent.

The cash reserve, the amo