The Reserve Bank of India held interest rates steady as widely expected at its policy review on Tuesday. However, Governor Raghuram Rajan signaled a softening of stance on interest rates, which could pave the way for a rate cut early next year.
Here are five key things Dr Rajan said in Tuesday's policy announcement:
1) The RBI could cut interest rates early next year if inflation eases further and if fiscal developments are encouraging, the central bank said. A rate cut may happen even outside the policy review cycle, the RBI said.
2) Headline inflation has been receding steadily and current readings are below the January 2015 target of 8 per cent as well as the January 2016 target of 6 per cent.
3) The Governor said the RBI does not intend to flip-flop on policy and is in discussions with the government for a new monetary framework which it hopes to finalise shortly.
4) Some easing of monetary conditions has already taken place, but this has yet to be transmitted by banks into lower lending rates, the RBI said. Dr Rajan later clarified that the RBI is not asking banks to cut rates.
5) The RBI is not against growth, but there is a need to create a framework for it, Dr Rajan said. We are looking at years of sustainable growth by beating inflation, he added.
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