The Reserve Bank of India (RBI) held interest rates steady on Tuesday, while boosting banks' liquidity in an attempt to persuade them to lower lending rates after they failed to pass on the benefits of the last official rate cut three weeks ago.

The RBI kept its policy repo rate unchanged at 7.75 percent, as expected by analysts, leaving its next reduction probably until after the government presents its annual budget at the end of this month.

To prod banks to lend more and lower their lending rates, the RBI cut the statutory liquidity ratio (SLR) - the minimum portion of net deposits that banks must hold in government bonds, cash or gold - by 50 basis points to 21.5 percent from 7th Feb.

The RBI said that the outlook for growth has improved modestly on the back of disinflation, easier financing conditions, real income gains from decline in oil prices and some progress on stalled projects.

The central bank further added that domestically, conditions for growth are slowly improving with supportive monetary conditions, easing input cost pressures and recent measures relating to project approvals, infrastructure, mining and land acquisition.

The RBI noted that there is improvement in business confidence as visible from a pick-up in new investment intentions, especially in manufacturing, power and transportation.

The central bank estimated the current account deficit (CAD) for 2014- 15 at 1.3 percent of the GDP, significantly lower than the earlier projection.

Last month, RBI Governor Raghuram Rajan had surprised markets with a 25 basis point rate cut and has hinted at more as prices cool.