India's central bank, however, cut the CRR by 25 basis points (bps) to pre-empt any liquidity strains. The cut in the CRR will help increase liquidity to the tune of Rs 17,500 crores of into the banking system.

Today's move is a clear hint from the RBI to fight inflation, despite lower levels of growth.

"On the inflation front, despite recent moderation, global commodity prices remain high. While oil prices appear to have stabilised, balancing between weak demand prospects and abundant liquidity, upside risks from persistently high liquidity and geopolitical developments remain. Further, domestic prices of administered petroleum products do not reflect the full pass-through of global commodity prices, and under-recoveries persist," the RBI stated in a release.

The RBI also increased its inflation forecast to 7.5% to March 2013.

The decision to keep repo rates unchanged saw the stock markets dropping sharply from their earlier highs. The Sensex was trading lower by 132 points at 11.20 am IST.

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