Bank comments hit Indian shares

Investors sold shares on the back of the central bank's comments

India's leading shares slipped more than 2% after the country's central bank said it was time to roll back some of its economic support measures.

The bank said the economy was not ready for an increase in borrowing costs, and so it kept interest rates on hold.

But it said it would end some of the measures it had introduced during the global downturn to increase the amount of money in the financial system.

The Indian economy has continued to grow during the downturn.

This is in stark contrast to more developed economies that fell into recession.

Rate rises

The Sensex share index closed down 387.1 points, or 2.3%, at 16,353.40.

"Reversing conventional measures is not appropriate for now, but the unconventional measures can be reversed immediately," said Reserve Bank of India (RBI) Governor Duvvuri Subbarao.

However, analysts said the bank was laying the ground for increasing interest rates.

"The RBI is sending signals and preparing the system for a tightening of rates in the near future, led by inflationary concerns," said Rupa Rege Nitsure at the Bank of Baroda.