Reserve Bank of India on Tuesday injected Rs. 32,000 crore into the system by lowering the Cash Reserve Ratio (CRR) by half-a-percentage point but kept the short-term lending rate (repo) unchanged in view of persisting inflationary concerns.

“Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate,” RBI Governor D.Subbarao said while unveiling the third quarterly monetary policy review.

With additional liquidity by CRR cut, there is a possibility that banks may reduce the interest rate to attract borrowers.

Projecting a lower growth of 7 per cent for 2011-12, the Reserve Bank said the policy actions are meant to “mitigate downside risks to growth” and anchor inflationary expectations.

The CRR, the amount of deposits the banks are required to keep with RBI in cash, has been reduced to 5.5 per cent from 6 per cent with effect from January 28, releasing Rs. 32,000 crore in the system to ease the liquidity problems. The short-term lending rate (repo) has been kept unchanged at 8.5 per cent.

The policy said through the multiplier effect, additional credit to the tune of Rs 1.6 lakh crore would be generated in the system over a period of time.

The stock market reacted positively to the policy announcement and the banking stocks, in particular, shot up.