India cuts reserve ratio, holds key rate

India's central bank has cut lenders' reserve requirements to back a policy revamp by the government aimed at reviving growth, while leaving interest rates unchanged to fight price pressures.

Bank governor Duvvuri Subbarao reduced the cash reserve ratio to 4.25% from 4.5%, adding about 175 billion rupees to the banking system, the Reserve Bank of India said in Mumbai Tuesday. The reduction to a 36-year low, the fourth this year, was predicted by 19 of 33 analysts in a Bloomberg News survey, while four expected 4 percent and the rest no change.

India faces inflation of almost 8 percent, curbing scope to join nations from Brazil to Thailand in extending rate cuts as the global recovery falters. While the central bank resisted Finance Minister Palaniappan Chidambaram's call for cheaper credit to back the policy overhaul, which includes steps to pare a budget deficit, it said there is a "reasonable likelihood" of further easing in January-to-March as inflation cools.

"The central bank can do only this much at this stage to complement the government's efforts to support growth,'' Rupa Rege Nitsure, an economist at state-owned Bank of Baroda in Mumbai, said before the release. "The monetary authority has less room to cut rates due to rising inflation.''

Prime Minister Manmohan Singh's administration started the policy changes, which include fuel-subsidy curbs and a push to spur investment, on Sept. 13. The measures boosted investor confidence, helping to buoy the rupee and stocks.

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