* Repo rate held at 6.50 percent
* RBI retains "calibrated tightening" stance
* Cutting minimum bond holding ratio to spur bank lending
* Bond yields fall as RBI lowers inflation projection (Adds further comments from government statement)
By Swati Bhat and Suvashree Choudhury
MUMBAI, Dec 5 (Reuters) - India's central bank kept interest rates unchanged on Wednesday, in a decision that was widely expected as inflation has eased significantly, while it took steps to persuade banks to lend more in order to support an economy that has lost some momentum.
"The time is apposite to further strengthen domestic macro-economic fundamentals," the Reserve Bank of India (RBI) said in a statement following a monetary policy committee (MPC) meeting.
The decision to keep the repo rate INREPO=ECI unchanged at 6.50 percent was as predicted by 64 of 70 analysts in a Reuters poll. The central bank also retained its 'calibrated tightening' stance as expected.
The government, which has been at loggerheads with the central bank in recent weeks amid a slowdown in economic growth, said in a statement it welcomed the MPC's assessment but it believed the "policy stance probably required calibration," suggesting it may be unhappy with the RBI retaining its tightening bias.
A finance ministry spokesperson could not be reached for comment.
All six members of the MPC voted to keep the rates on hold.
"Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook," the bank said in its statement.
The central bank said starting in the January-March quarter of 2019 it would begin to lower banks' mandatory bond holding ratios, by 25 basis points each quarter until it reaches 18 percent of deposits.
The so-called statutory liquidity ratio (SLR) currently stands at 19.50 percent and the move to lower the SLR should prod banks to lend more rather than park their cash in safe-haven government securities.
While this will have some implication for government securities, "the reduction in oil prices and reversal of foreign flows has resulted in further moderation of yields," India's economic affairs secretary said in a government statement on Wednesday.
India's 10-year benchmark bond yield IN071728G=CC was trading at 7.46 percent from 7.54 percent before the policy statement.
The Indian rupee INR=D4 eased to 70.60 to the dollar from 70.50 before the policy statement, while the broader NSE stock index .NSEI was down 0.8 percent at 1009 GMT.
A pause in rate hikes is a welcome relief for Prime Minister Narendra Modi's ruling party as it prepares for an election next year. Modi's government has faced criticism over the distress among farmers and small businesses.
The government in turn has put pressure on the RBI to ease lending rules and nurse a weakened shadow banking sector at a time when banks laden with bad loans are hesitant to lend. Also, the government has been asking the RBI to pay a higher dividend from its reserves to help fund the fiscal deficit.
The discord between government and RBI officials became public in October, and as a war of words ensued there was speculation that Governor Urjit Patel might resign.
Making his first media appearance since the controversy erupted, Patel refused to be drawn on the matter.
"Is this related to the monetary policy committee resolution? I don't think so. We're here to discuss the monetary policy committee resolution and the macro economy," Patel said, rebuffing questions from reporters on the issue.
INFLATION VS GROWTH
Regarding the economy the RBI was positive but cautious.
The central bank slashed its inflation projection to 2.7-3.2 percent by March-end from its prior view of 3.9-4.5 percent. But it foresaw inflation picking up again, projecting a rate of between 3.8-4.2 percent in the first half of fiscal 2019/20.
The RBI held its growth forecast for the fiscal year 2018/19 ending in March at 7.4 percent in contrast to expectations of a downward revision following a sharp slowdown in July-September , when annual growth INGDPQ=ECI slid to 7.1 percent from the two-year high of 8.2 percent the previous quarter.
Since embarking on a tightening cycle in June, the RBI has raised its policy repo rate by 50 basis points.
Since then the RBI's pause on rates has contrasted with other Asian central banks, including South Korea, Philippines and Indonesia, that have raised rates.
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