Reflecting an apparent disconnect with the government, Reserve Bank today continued its cautious stance refusing to lower interest rates disappointing Finance Minister P Chidambaram and the industry while it brought down Cash Reserve Ratio by 0.25 per cent to inject Rs.17,500 crore.

Bankers by and large ruled out any immediate cut in interest rates while Chidambaram appeared not-too enthusiastic over the central bank's approach saying growth is as much a challenge as inflation and government would "walk alone" for tackling it.

"Managing inflation and inflationary expectations remains the primary focus of the monetary policy," RBI Governor D Subbarao said while unveiling the second quarter policy review.

He said that persistently high inflation remains a "key challenge" and growth has slid.

A visibly disappointed Chidambaram reacted to RBI's announcement saying, "Growth is as much a challenge as inflation. If government has to walk alone to face the challenge of growth, then we will walk alone."

"Sometimes it is best to speak. Sometimes it is best to be silent. This is the time for silence," he said.

Only yesterday in anticipation of a possible rate cut, Chidambaram unveiled a five-year fiscal consolidation road map and had hoped that "everybody acknowledges the steps which we are taking".

Today also Chidambaram reiterated the point saying "it is my hope that everyone will read and understand the government's commitment to the path of fiscal consolidation".

The policy announcement disappointed India Inc as well as stock markets. BSE Sensex tanked by over 200 points to close at 18,430.85.

Top bankers at a press conference ruled out any immediate reduction in interest rates. However, SBI Chairman Pratip Chaudhuri said that the Asset-Liability Committee of the bank would meet in a day or two to take a view on the issue.

Highlighting the impact of interest rate cut on the retail loan demand, he said the bank has greatly benefited by rate cutting because now the growth was coming in the retail segment.

Assocham said, "the industry is disappointed that the key policy rate, the repo rate, has not been reduced. The focus continues to be on managing inflation with the growth continues to suffer."

The CRR--the portion of deposits banks park with the RBI -- now stands at 4.25 per cent while Repo, the rate at which RBI lends to banks, has been retained at 8 per cent.

Reverse repo, the rate at which RBI borrows from banks, remains at 7 per cent. The CRR cut will be effective from November 3.

The RBI revised downwards the GDP growth estimate for the current fiscal to 5.8 per cent from the earlier 6.5 per cent, while increased its March-end headline inflation forecast to 7.5 per cent. This is the second time since the beginning of the fiscal that it has revised estimate on both the aspects.

There were expectation that RBI could lower interest rates especially after government's yesterday's announcement, and starting reform initiatives like hiking diesel prices and relaxing foreign investment norms for retail, insurance, pension, information and broadcasting sector.

RBI said: "recent policy initiatives undertaken by the government have begun to dispel pervasive negative sentiments. As the measures already announced are implemented and further reforms are initiated, they should help improve investment climate".

Reacting to the Chidambaram's concerns over RBI's monetary stance, Subbarao said: "I think both the government and the RBI share concerns both about growth and inflation. We are as much concerned about growth as inflation, only our balance is shifting."

In its policy RBI said its monetary stance is aimed at reinforcing the government's policy actions that will have a "positive impact" on growth. In view of global and domestic factors like poor investments and subdued demand, the RBI sharply lowered the GDP projection to 5.8 per cent. The economy grew at 6.5 per cent in 2011-12, the lowest pace in about a decade.

RBI said inflation is likely to ease in the January-March quarter. "While risk to this trajectory remain, the baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13," it said.

WPI inflation stood at 7.81 per cent in September, much above the RBI's comfort level of 4-4.5 per cent.

"As inflation eases further, there will be an opportunity for monetary policy to act in conjunction with fiscal and other measures to mitigate the growth risks and take the economy to a higher growth trajectory," Subbarao said.