Explaining the RBI's rationale for today's policy stance, the Governor said, "We are not soft on inflation. We are waiting for more data. As the data come in, we will react appropriately."
The apex bank's decision was a big relief to borrowers and the markets, with the Sensex gaining 248 points to end at 20,859.86. The 10-year government bond yield fell 13 basis points to end at 8.78 per cent as against 8.91 per cent during the opening trade.
Rajan said he expects stronger growth in the second half of this financial year, aided by higher expansion in agriculture, exports and a revival in stalled projects.
The Governor, who took charge in early September, said he would stick with the earlier 5 per cent growth projection for the full year, with minor fluctuations.
Raghuram Rajan exuded confidence in the government's ability to meet the fiscal deficit target of 4.8 per cent of GDP. A cut in government spending, increase in disinvestment and greater revenue from state-owned companies will help meet the target.
Expressing happiness over the way the rupee is faring, Rajan said, "We are happy with the reduction in volatility and that was our aim right through.
"We also wanted to reduce the unhinged expectations on the rupee. There was a point where analysts were competing with each other to see how weak they could proclaim the rupee to be at the end of the year... We hope that unhinging of expectations has come down."
Talking about the external environment, Raghuram Rajan said it is not something to be complacent about and the RBI is fully prepared to deal with any volatility that may come once the US Fed starts tapering its bond-buying programme.
"We are certainly focused on the external environment. We are better focused to withstand the volatility stemming from tapering," he said.
The Governor said he is comfortable with the prevailing level of the current account deficit (CAD), which narrowed to 1.7 per cent of GDP in the second quarter from 4.9 per cent in the first quarter.
The Governor, however, said, "I would be much