India's central bank kept its benchmark interest rate on hold on Monday, preferring to wait to assess the impact of a flurry of government reforms before reducing the cost of borrowing.

The Reserve Bank of India had been under pressure from the government and business leaders to cut interest rates to boost the ailing economy, which grew at just 5.5 per cent in the quarter to June.

The central bank said that because of concerns over inflation, which remains high, the benchmark repo rate, at which it lends to commercial banks, would remain at 8.0 per cent.

But it moved to increase liquidity in the banking sector by cutting its cash reserve ratio, the amount which banks have to keep aside as deposits, by 25 basis points to 4.50 per cent.

The bank has not cut benchmark rates since April in a bid to keep a lid on inflation, which hit 7.55 per cent in August -- far above the RBI's comfort level.

The central bank has repeatedly called for policy action from the government to reduce subsidies and improve the investment climate before further rate cuts could be approved.

Prime Minister Manmohan Singh's cabinet approved a series of measures late last week, hiking diesel prices, opening the doors to foreign investors in key new sectors and approving the part-privatisation of four state-run companies.

The reforms, which analysts said had shown the government was willing to take risky and unpopular steps, had led to particular focus on the RBI's decision on Monday.

channelnewsasia.com