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RBI softens hawkish tone as India's inflation cools

Mumbai

INDIA'S central bank struck a less hawkish tone on Wednesday, signalling it was open to adjusting monetary policy if upside risks to inflation don't materialise.

Bonds rallied. Just two months after stating that interest rate cuts were "off the table", governor Urjit Patel said there's the possibility of "commensurate policy actions" if inflation continues to undershoot. His comments followed the monetary policy committee's decision to keep interest rates unchanged for a second straight meeting, in line with most economists' estimates.

The Reserve Bank of India, which raised interest rates twice this year, lowered its inflation forecasts for the second half of the fiscal year after a sharp drop in oil prices and a rebound in the rupee as stress on emerging market assets waned.

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Giving itself policy room, the RBI maintained its "calibrated tightening" stance that allows for either a hold or an increase in rates, citing a still optimistic outlook for economic growth despite the recent slowdown, and volatile oil and food prices.

"The central bank has kept its options for further rate actions open with downward revision of inflation projections and also retaining its stance of calibrated tightening," said Rajni Thakur, an economist at RBL Bank in Mumbai. Mr Patel didn't address the recent dispute with the government over the central bank's role, which market participants had been expecting. BLOOMBERG