INDIA’S central bank governor Raghuram Rajan on Tuesday eased rules to spur bank lending and toned down his inflation rhetoric in moves set to be welcomed by a new pro-business government determined to revive economic growth.

    The Reserve Bank of India (RBI), which kept interest rates on hold at 8 percent as widely expected, also hinted it would not raise rates as long as inflationary pressures continued to ease.

    The loosening in credit and the central bank’s surprisingly dovish remarks on inflation will put the onus on the new government to stick to conservative fiscal spending and broader reforms to get Asia’s third-largest economy back on track, economists said.

    The decisions from the RBI were widely seen as pragmatic moves. Rajan has placed fighting inflation at the top of his agenda, for which he will need the support of Narendra Modi, India’s popular new prime minister.

    In turn, investors are hopeful the new government will respond by narrowing the fiscal deficit and tackling the supply-side factors that drive up food inflation in India, thus easing the burden on the poor and restoring investors’ confidence.

    “If the economy stays on this course, further policy tightening will not be warranted,” Rajan said in the RBI statement, referring to the moderating inflation trend.

    The central bank governor added that the Modi-led victory in elections last month could help “create a conducive environment for comprehensive policy actions and a revival in aggregate demand as well as a gradual recovery of growth.”

    The governor’s dovish tone on inflation sparked a rally in bonds and raised expectations the central bank could even ease monetary policy as early as this year.(SD-Agencies)