The RBI has decided to hold the rates.

The repo rate remains unchanged at 8 per cent. There are no changes in CRR either which remains at 4 per cent of deposits. The RBI has said it will continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL (net demand and time liabilities) at the repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and continue with daily one-day term repos and reverse repos to smooth liquidity. ( >Highlights of RBI monetary policy )

Markets reaction : The Sensex and the Nifty turned volatile post the announcement. It hit a low of 28,386.46 intra-day before recovering to 28,429, down by over 130 points now. Top banking stocks were mostly flat or marginally down. The State Bank of India stock was at Rs 317, down 0.55 per cent while the HDFC Bank stock was at Rs 940, down 1.10%. Axis Bank was at Rs 487, down -0.48% while ICICI Bank was trading at Rs 1758.90, up by 0.08% at about 12.15 pm. Bond yields hit a low of 7.99 per cent in trade today, the lowest level since July 2013. ( >Track markets live here )

Hints at rate cut in 2014: The RBI Governor has held out the hope that there could be a cut in rates early next year. In the monetary policy review statement announced a short while ago, Rajan has said that a change at this juncture is premature.

Citing uncertainity about the public's inflationary expectations as well as the success of the government's deficit reduction efforts, he said monetary policy will have only a signalling effect for some time. He noted that the recent reductions in government securities yields, while indicating softer rates had not yet translated into lower lending rates by banks.

He did however say that if the current momentum on controlling inflation and inflationary expectation continues and if fiscal developments are encouraging, then a change is likely early next year, "including, outside the policy review cycle". It may be noted that the next policy review is scheduled for February 3, 2015. This will be just ahead of the next Union Budget scheduled for end Feburary 2015.

The central bank reasoned that administered price corrections, as and when they are effected, weaker-than-anticipated agricultural production, and a possible rise in energy prices on the back of geo-political risks could alter the currently benign inflation outlook significantly.

The RBI has stood pat on the policy rate since January, when it increased the repo rate by 25 basis points to 8 per cent.

On NPAs and promoters: There are large number of promoters who have taken genuine risks. Those situations have to be worked through. Some concessions will have to be given by banks and some promoters may have to give up control. Sometimes promoters stand in the way. We have to send a strong message there. If we speed up trials, debt recovery tribunals, it will help recover debt risks. We don't want to scare investors but at the same time banks need a mechanism to recover debt.

Growth target : RBI has kept the growth target for the current fiscal unchanged at 5.5 per cent. Our projections are for a steady pick up in growth going forward.

On inflation: Inflation target will be 4 per cent, plus or minus 2 per cent, the RBI Governor said. Moderate inflation is a must to sustain a healthy growth, he said.

New monetary policy: Raghuram Rajan said he hoped to finalise the new monetary policy shortly.

The RBI will come out with two measures on restructuring to tackle financial stress.

Rajan's message to India Inc: There is a misconception in corporate India that the RBI is not concerned about growth. Monetary policy will not affect growth this quarter. What we have seen is that for sustained growth we have to moderate inflation. It's very short sighted when people comment on growth. If you are investing are you bothered about rates this quarter. Corporate India should accept there's some positives. There is some confusion over what rates RBI is responsible for. Ability to to repay by corprates should not be attributed to the RBI.

Raghuram Rajan on payment banks: "I don't have a number on the licences. We have two expert committees which will appoint and we will go through that. My guess is that it will be certainly more than two. We need to ensure that there are a variety of participants so that we can learn from the experience. This will be a full fledged licensing process . We will do everything as fast as we can. So I would use 3 to 4 months as a benchmark in giving out the licences."

Defies populist call: The RBI Governor has been under considerable pressure from industry bodies besides the odd ministerial pronouncement suggesting that he cut rates and give a boost to growth. The slight fall in the gross domestic product (GDP) numbers for the last quarter which printed at 5.3% compared to 5.7% in the preceding quarter may have also added some heft to their pleas.

For once, the macro-economic indicators that the RBI usually quotes in support of its stance to hold rates firm are all in a favourable territory. Consumer price inflation (CPI) has been trending lower to 5.52% in october down from almost 11 per cent at the beginning of 2014. Oil prices have fallen precipitously to $ 67.53 a barrel from levels of $110 a barrel a year ago. This was also the level that has been assumed while framing the Budget earlier this year - and hence the gains on fiscal deficit and current account deficit can be inferred. Whether this favourable set of circumstances will sustain for the next year is still in the realm of guesses and this could be a factor that may hold the Governor's hand. The RBI Governor has been keen to win the inflation battle and bring down inflationary expectations in the country.

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