An interest rate hike would have indicated a greater degree of confidence in the recovery but the possibility of a mid-cycle action exists in case of a provocative situation, a deputy governor at the Reserve Bank of India (RBI) said on Friday.
"As far as rate hike goes there is also a signalling angle. It might have indicated a greater degree of confidence in the recovery," Subir Gokarn said.
He was speaking to reporters after the central bank surprised markets by raising banks' cash reserve requirements by more than expected and warned of mounting inflation, setting the stage for lifting interest rates in the coming months.
"Whereas we have been saying recovery is in place ... it is still uneven. That is really what in our calculations was the strongest argument against hike of rates," Gokarn said.
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An interest rate hike would have indicated a greater degree of confidence in the recovery, says Subir Gokarn