Amid speculation that the Reserve Bank of
After meeting in financial capital
Modi's decisive election result, together with 'improved sentiment' should create a sound environment for new policy steps and demand revival as well as gradual growth recovery, Rajan said.
"The tone of the RBI is definitely dovish. In fact, they seem to be now open to the idea of easing (rates)," said
Rajan said it was appropriate to leave rates unchanged and allow the impact of three rate hikes since last September to feed through the system and offset inflationary pressures.
The former International Monetary Fund chief economist said if the economy stays on its current 'disinflationary' course further rate hikes 'will not be warranted'.
Current account deficit
The bank also cut the statutory liquidity ratio, the amount banks must keep in government securities, by 50 basis points to 22.5 per cent to free up funds for the banking system and spur economic activity.
Rajan's policies since taking office have been widely credited with helping to reduce the current account deficit — the widest measure of trade — and restoring the rupee's stability.
But his tight monetary policy has disappointed business leaders who have called for lower borrowing costs to jumpstart growth — a view analysts say could find sympathy with Modi's
The economy expanded by just 4.7 per cent last year — the lowest level in nearly a decade, and half the rate during
But with overall consumer inflation nudging nine percent and food inflation near double-digits, amid fears a weak monsoon could push prices higher, the Reserve Bank of
Low and stable inflation
Rajan, whose chiselled features prompted the daily Times of
Modi's right-wing BJP swept to victory last month, ousting the left-leaning
Although the RBI came in for criticism from the BJP before the election for keeping rates high, Rajan at a conference in
There is "often a tendency to try and find a wedge between the two and widen the wedge", he said.
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