Rising inflationary pressure and concerns over "fiscal slippage" prompted India's central bank, the RBI, on Wednesday to maintain its key lending rates.
However, the central bank eased liquidity constraints, but also lowered the country's growth projection due to implementation of the Goods & Services Tax and loss of consumer and business confidence.
According to the Reserve Bank of India's fourth bi-monthly monetary policy review of 2017-18, the repurchase rate, or the short-term lending rate for commercial banks on loans taken from it, has been maintained at 6 per cent.
Consequent to the decision to maintain the repo rate, the reverse repo rate remained at 5.75 per cent.
"The decision of the MPC (Monetary Policy Committee) is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent... while supporting growth," the fourth bi-monthly monetary policy statement said.
The decision was taken by the six-member MPC headed by RBI Governor Urjit R. Patel. Five members of the panel voted in favour of maintaining the key lending rate.
The six members of MPC are equally divided amongst government nominees and the RBI.
At its last policy review in August, the central bank had reduced its repo rate by 25 basis points (bps) to 6 per cent from 6.25 per cent.
However, to induce liquidity into the system, the RBI reduced the Statutory Liquidity Ratio (SLR) -- a reserve requirement that commercial banks must maintain -- by 50 basis points to 19.5 per cent from October 15.
Further, RBI lowered the country's growth projection for 2017-18, pegging the Gross Value Added (GVA) at 6.7 per cent.
The central bank had earlier estimated India's GVA in 2017-18 to grow at 7.3 per cent.
Taking into account various factors during the fiscal, the RBI said: "The projection of real GVA growth for 2017-18 has been revised down to 6.7 per cent from the August 2017 projection of 7.3 per cent, with risks evenly balanced."
The equity markets, which had already discounted any further reduction in key lending rates, made substantial gains as RBI reduced the SLR which created healthy demand for the banking stocks.
The key indices also rose on the back of positive global cues and value buying.
At 2.40 p.m., the wider Nifty50 of the National Stock Exchange (NSE) rose by 59.75 points, or 0.61 per cent, to trade at 9,919.25 points.
The 30-scrip Sensitive Index (Sensex) of the BSE, which opened at 31,522.17 points, traded at 31,728.40 points -- up 231.02 points, or 0.73 per cent.