With the system facing cash crunch due to outgo on account of advance tax

RELATED ARTICLES RBI likely sold dollars at 56-level: traders RBI does not rule out selling dollars to oil companies RBI should intervene to check rupee slide: Anand Sharma Direct RBI dollar sales to oil firms possible: Rangarajan RBI to infuse Rs 12k cr into market this week

payments and busy credit season, the RBI today announced measures to pump in Rs 48,000 crore even as it cautioned against inflation.

It said prices still remained a major concern because of rising demand and high global commodity rates.

At the same time, the Reserve Bank kept short-term lending and borrowing rates (repo and reverse repo) as well as mandatory deposit requirement for banks (cash reserve ratio) unchanged.

This is aimed at prompting most banks to hold on to their interest rates. Meanwhile, the market took the announcements with a pinch of salt with the Bombay Stock Exchange's benchmark index Sensex trading lower by over 50 points at 19,594.83 during intra-day trading.

Besides, the rate sensitive sectors like banking, realty were mixed with Bankex trading 0.47 per cent higher and Realty index at 0.03 per cent down.

The RBI measures came on a day when food inflation rose to 9.46 per cent for the week ended December four from 8.60 per cent a week ago, and the central bank also did not rule out the possibility of the rate of overall price rise going above its projections of 5.5 per cent by March-end.

Hike in petrol prices is also expected to add to inflationary pressures. However, overall inflation has been declining persistently and stood at 7.48 per cent in November.

Enthused by 8.9 per cent growth rate for the second quarter, RBI, however, did not change its projections of 8.5 per cent economic growth this fiscal and preferred to revisit numbers at its next review on January 25, 2011.

Blaming the government's huge cash balance for aggravating liquidity situation, the central bank said it will purchase sovereign securities for Rs 48,000 crore in a month, expected to ease situation of cash-strapped system a bit.

It also cut Statutory Liquidity Ratio (SLR), which is a requirement for banks to keep portion of their deposits in government securities, cash and gold, by one percentage point to 24 per cent from the present 25 per cent.

However, the measure is unlikely to provide any immediaterelief to the system, as RBI has already announced that it will not penalise the banks even if their SLR comes down two percentage points below the mandatory requirement.

That facility now stands cut to one percentage points, RBI said today.The RBI cautioned that its moves should not be seen as a change in the policy stance, since "inflation continues to remain a major concern."

However, technically RBI's move is a first measure stance this year of a pause on its rising rates spree.

The central bank said while it expected liquidity to remain in short supply, "the extent of tightness has been beyond the comfort level of the Reserve Bank."

"This has been mainly due to persistence of large government cash balances which have averaged Rs 84,000 crore since the Second Quarter Review of November," it said.

The Government got over Rs one lakh crore from the sale of spectrum to high speed telecom and broadband services against its projections of Rs 35,000 crore in the Budget.

It is also expected to get robust tax collections from corporates in advance payments for third quarter.

Bankers said RBI actions would enable most banks to not further raise their interest rates.