The Reserve Bank of India on Tuesday lowered the Cash Reserve Ratio, the amount of deposits that banks are required to keep in cash with the RBI, to 5.5 per cent, from 6 per cent, with effect from January 28, to release 32,000 crore rupees into the system and ease liquidity problems.

But the RBI kept its short-term lending rate unchanged at 8.5 per cent, in view of persisting inflationary concerns. RBI Governor, D. Subbarao said, while unveiling the third quarterly monetary policy review, that based on the current inflation trajectory, it is premature to begin reducing the policy rate.

The RBI also lowered its growth projection for 2011-12 to 7 per cent, from 7.6 per cent, in view of the global slowdown and domestic policy constraints.

The central bank expects headline inflation to moderate to 7 per cent by March, but there are concerns over the persistently high prices of non-food manufacturing items.

Subbarao said that the growth-inflation balance of the monetary policy stance has now shifted to growth. The RBI governor further said that slippage on fiscal deficit, crude prices, and rupee depreciation are key challenges for inflation.