RBI keeps rates on hold; to gradually reduce SLR

By Swati Bhat and Suvashree Choudhury

MUMBAI (Reuters) - The Reserve Bank of India (RBI) kept interest rates unchanged on Wednesday, in a decision that was widely expected as inflation has eased significantly, while it took steps to persuade banks to lend more in order to support an economy that has lost some momentum.

The monetary policy committee (MPC) kept the repo rate unchanged at 6.50 percent on Wednesday as predicted by 64 of 70 analysts in a Reuters poll. The central bank also retained its 'calibrated tightening' stance as expected.

All six members of the MPC voted to keep the rates on hold.

"Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook," said the MPC in its statement.

The central bank said starting in the January-March quarter of 2019 it would begin to lower banks' mandatory bond holding ratios by 25 basis points each quarter until it reaches 18 percent of deposits.

The so-called statutory liquidity ratio (SLR) currently stands at 19.50 percent and the move to lower the SLR should prod banks to lend more rather than park their cash in safe-haven government securities.

After the RBI policy announcement, India's 10-year benchmark bond yield fell to 7.48 percent from 7.54 percent before the policy statement.

The rupee strengthened to 70.46 to the dollar from 70.50 before the policy statement, while the broader NSE stock index was down 0.68 percent at 0905 GMT.

(Reporting by Swati Bhat and Suvashree Dey Choudhury; Editing by Simon Cameron-Moore)