India's central bank on Tuesday decided to keep its key rates unchanged as widely expected and reduced the cash reserve ratio by 25 basis point to improve liquidity.

The Reserve Bank of India (RBI) left the repo rate unchanged at 8 percent and the reverse repo at 7 percent in its second quarter review. The repo rate is the rate at which the central bank lends to banks and the reverse repo rate is the rate at which it accepts deposits from banks.

The cash reserve ratio was lowered to 4.25 percent from 4.50 percent, effective from November 3. The reduction will inject INR 175 billion into the banking system.

"The reduction in the CRR is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth," the bank said.

The central bank hinted more policy easing over the coming period. "The baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13," RBI said. The above policy guidance will, however, be conditioned by the evolving growth-inflation dynamic.

Further, the bank raised the baseline projection for headline wholesale price inflation for March 2013 to 7.5 percent from 7 percent indicated in July and trimmed the GDP growth projection for 2012-13 to 5.8 percent.

RTTNews