2nd LD Writethru: India's central bank keeps policy interest rate unchanged at 6.5 pct

India's central bank Tuesday kept the country's key policy interest rate unchanged at 6.5 percent in the wake of the increasing inflatory trend in the economy, pushing the share market benchmark Sensex in the red.

Though the outgoing governor of the Reserve Bank of India, Raghuram Rajan, kept the repo rate intact at a five-year low in his last monetary policy meet before his three-year tenure ends next month, he hinted that the "policy stance remains accommodative."

Repo rate is the rate at which the central bank lends money to banks in the short-term.

"It is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action. The stance of monetary policy remains accommodative and will continue to emphasise the adequate provision of liquidity," Rajan said.

The Reserve Bank of India also kept the reverse repo rate unchanged at 6 percent and the cash reserve ratio of scheduled banks steady at 4 percent of net demand and time liabilities.

However, share prices plunged, pausing a three-day rally, as investors booked profits over the unchanged repo rate, with the Sensex trading at 28,056.56 and the broader National Stock Exchange Nifty remaining below the crucial 8,700-mark.

Rajan, the respected former International Monetary Fund chief economist, who had predicted the 2008 recession, has already announced his intention to go back to academia after his tenure ends on September 4, but the Indian government is yet to pick his successor.

However, he will be credited for breaking the back of double digit inflation levels prevailing when he took over as the Reserve Bank Governor three years ago. Endit