The Reserve Bank today announced 0.5 percentage point cut in cash reserve ratio to

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inject Rs 32,000 crore into the system, but the measure may not lead to immediate reduction in EMIs for borrowers.

While RBI "shifted" the policy stance from inflation to growth which faces downside risks, borrowers reeling under high interest rates can draw solace from the announcement that "future rate actions will be towards lowering them".

However, the interest rate cut (repo rate) would depend on the government disciplining its expenditure, RBI said.

In its third quarterly review of the monetary policy, RBI kept the short-term lending rate (repo) unchanged at 8.5 per cent. It also did not alter bank rate of six per cent.

Addressing concerns over decelerating growth, upside risks to inflation and tight liquidity conditions, the central bank has left banks with more resources for lending through CRR cut, which will come into effect from January 28.

Despite a sharp reduction in food prices, RBI took a cautious view and refrained from reducing interest rates.

"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 adding March end inflation would be 7 per cent.

RBI lowered growth projection for 2011-12 to 7 per cent from 7.6 per cent in view of global slowdown and domestic policy constraints. The new CRR rate would be 5.5 per cent.

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

Subbarao warned that unless the government contains its fiscal deficit, rate cut is not possible. "In the absence of credible fiscal consolidation, the RBI will be constrained from lowering the policy rates...The forthcoming budget must ...Begin this process in a credible and sustainable way".