#RBI Policy review -

The Reserve Bank India raised its repo rate to 6.5 percent from 6.25 percent. It lifted the reverse repo rate to 5.5 percent from 5.25 percent.

The increase in key rates was the seventh since March, and while the 25 basis point rises were expected, a growing number of analysts had said in recent days that a 50 basis point increase was needed.

Following are highlights from the monetary policy review statement for the third quarter of the current fiscal year:

RATES:

RBI raises repo rate by 25 bps to 6.50 pct. RBI raises reverse repo rate by 25 bps to 5.50 pct Cash reserve ratio left unchanged at 6 pct

INFLATION:

End-March headline inflation projection revised up to 7 pct from 5.5 pct. RBI says inflation is clearly the dominant concern. Inflation likely to resume moderating trend in first quarter of 2011/12, Policy steps expected to contain spill-over of food, fuel prices to broader inflation Non-food manufacturing inflation sticky, reflecting buoyant demand, rising costs. Balance of risk has tilted towards 'intensification' of inflation Unless output enhancing steps taken, risks of food inflation becoming entrenched loom. Any slippage in fiscal consolidation may render process of inflation management harder stance to be ready to respond to any further build-up in inflationary pressure. Prospect of spill-over of food inflation into general inflation rapidly becoming a reality. Rising demand side pressures reflected in rapid bank credit, robust corporate sales

GROWTH:

* RBI retains 8.5 pct GDP growth projection for FY11 but with upside bias.  Faster-than-expected global recovery could hurt inflows.  Policy steps taken expected to be moderate enough not to disrupt growth,  Expect domestic growth momentum to stabilize, GDP growth rate may decline somewhat

LIQUIDITY:

Extends additional liquidity support of 1 percent of deposits to banks under liquidity adjustment facility to April 8. Second LAF to be conducted on daily basis up to April 8, Policy outcome expected to continue to provide comfort to banks in liquidity management.  Liquidity shortage expected to ease as government balances adjust to expenditure schedule. The widening difference between credit and deposit growth rates coupled with high currency growth accentuated the structural liquidity deficit

CREDIT GROWTH

Credit growth needs to moderate to RBI's indicative projected levels, Retains M3 growth projection for 2010/11 at 17 pct, credit growth projection at 20 percent. RBI to engage with banks which show abnormal incremental credit-deposit ratio.

CAPITAL INFLOWS

* Composition of inflows needs to shift to long-term commitments such as foreign direct investment

CURRENT ACCOUNT DEFICIT

Current account deficit for 2010/11 seen at 3.5 pct of GDP, which is 'not sustainable'. Need for concerted policy efforts to diversify exports and contain current account gap.

Thanks ! 

(Reuters)