The Reserve Bank of India on Tuesday injected Rs. 320 billion into the system by lowering the cash reserve ratio by half-a-percentage point but kept the short-term lending, or repo, rate 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,” Governor D. Subbarao said while unveiling the third quarterly monetary policy review on Tuesday.

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 percent 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 percent from 6 percent with effect from January 28, easing liquidity in the financial system. The repo remains unchanged at 8.5 percent.

Through the multiplier effect, additional credit to the tune of Rs. 1.60 trillion would be generated in the system over a period of time, the bank said.

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