Repo rates untouched, CRR hiked to 8.25%

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India's central bank said on Tuesday it was raising its cash reserve ratio by 25 basis points to 8.25 percent with effect from May 24 to control inflation-stoking cash in the system but kept all other official rates unchanged.

It forecast economic growth of 8.0 to 8.5 percent in the fiscal year that began this month, after an estimated 8.7 percent in 2007/08, and aimed for inflation of "around 5.5 percent" this fiscal year but with the goal of lowering it close to 5.0 percent as soon as possible.

The Reserve Bank of India (RBI) said managing liquidity would continue to receive priority in its policy objectives but warned it would act swiftly to curb any signs of "adverse developments" in inflation expectations.

The unexpected increase in the CRR, the amount of funds banks have to keep on deposit with the central bank, follows a surprise two-stage rise earlier in April to 8.0 percent. The second stage of that increase has still to take effect on May 10.

The RBI kept its key lending rate steady at 7.75 percent and left the reverse repo rate, the rate at which it absorbs excess cash from banks, unchanged at 6.0 percent. The bank rate, which is used to price medium-term and long-term loans, remained at 6.0 percent.

The decision comes as annual inflation holds above 7 percent, its highest in more than three years, due in part to rises in international food, oil and metal prices.

A slim majority of economists polled by Reuters last week had predicted no change in rates, including the CRR, but a substantial minority had expected one or more of the key interest rates to rise.

Following are key points from the Reserve Bank of India's (RBI) annual policy statement released on Tuesday.

Cash Reserve Ratio (CRR): To rise by 25 basis points to 8.25 percent, effective May 24. The CRR is the percentage of banks' deposits which they must keep as cash with the central bank.

Interest Rates

Repo Rate: Unchanged at 7.75 percent. This is the rate at which the central bank adds funds to the money market.

Reverse Repo Rate: Unchanged at 6.00 percent. This is the rate at which the central bank absorbs funds from the market.

It impacts government bond yields and short-term bank deposits.

Bank Rate: Unchanged at 6.00 percent. Banks use this rate to price their long-term loans to individuals and companies.

Monetary Policy Stance:

* To ensure a monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum.

* To respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate.

* To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

Growth Forecast:

* Expects 2008/09 growth of 8.0-8.5 percent.

Inflation Aim:

"The policy endeavour would be to bring down inflation from the current high level of above 7.0 per cent to around 5.5 per cent in 2008-09 with a preference for bringing it as close to 5.0 percent as soon as possible, recognising the evolving complexities in globally transmitted inflation."

Money Supply: Aims for 16.5-17.0 percent money supply growth in 2008/09.