The Reserve Bank of India (RBI) on Monday including cash reserve ratio (CRR) and repo rate, saying the fall in rupee has provoked the risk on inflation.
In its mid-quarter review of the monetary policy for 2013-14, the central bank kept the repo rate unchanged to 7.25 percent while the reverse repo rate was fixed to 6.25 percent. Repo rate is the rate at which the RBI borrows money from the commercial bank.
The cash reserve ratio (CRR), or the share of deposits banks must keep with the RBI, was also not changed at 4 percent.
The RBI kept the status unchanged despite moderation in inflation. The central bank said the recent downfall of the rupee status and possible increase in administered prices could trigger inflationary pressure.
"The inflation outlook going forward will be determined by suppressed inflation being released through revisions in administered prices, including the minimum support prices as well as the recent depreciation of the rupee," the RBI said in its policy document.
The central bank said moderating commodity prices at the global level and weaker pricing power of corporates at the domestic level are having a softening influence on inflation.
"Given that food inflation remains high, the inflation outlook will be influenced by concerted efforts to break food inflation persistence," it said.
According to data released by the commerce and industry ministry last week, the country's major inflation based on the Wholesale Price Index (WPI) fell to 4.7 percent in May, which was the lowest in last 43 months, against 4.89 percent in April and 7.55 percent in the corresponding month of last year.
Retail inflation based on the Consume Price Index (CPI) declined to 9.3 percent in May against 10.2 percent in the previous month.
The central bank said the monetary policy stand would be identified by how growth and inflation arcs and the balance of payments situation evolve in the months ahead.
"It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth. While several measures have been taken to contain the current account deficit, we need to be vigilant about the global uncertainty, the rapid shift in risk perceptions and its impact on capital flows," it said.
"The Reserve Bank stands ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments," it added.
On growth, the central bank said the key to "reinvigorating growth is accelerating investment by creating a conducive environment for private investment, improving project clearance and implementation and leveraging on the crowding-in role of public investment."
"The spatial and temporal distribution of rainfall over the next three months will be crucial in determining the performance of agriculture. The continuing weakness in manufacturing activity needs to be urgently reversed," the RBI said.
-With inputs from IANS
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