India’s central bank may not cut its key rate until February unless inflation drops sharply or a global crisis hits, said a senior finance official at Axis Bank.

On Thursday, the Reserve Bank of India left the repo rate unchanged at 6.50%, as expected. However, Governor Shaktikanta Das said the central bank must move closer to its primary inflation target of 4% and will do “whatever is necessary to ensure that long-term inflation expectations remain firm”.

“The only reason to cut interest rates is if the inflation shock drops significantly, or if we have a geopolitical event or a major banking or financial crisis in developed markets, which will then start impacting our economy,” Neeraj Gambhir, group director for treasury , markets and wholesale banking products, told Reuters.

The RBI maintains its growth forecast at 6.5% for the current financial year and expects inflation to average 5.1%.

Mr Gambhir said that if growth remained in line with the central bank’s expectations, there would be no need to cut rates.

The central bank has no objection to real interest rates remaining positive if inflation remains stable, Gambhir added.

“I expect rate cuts to start in February-March, if growth falters, but not before then, and if growth does falter, then forecasts will be pushed further.

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Mr. Gambhir did not foresee a change in the bank’s policy stance on “retreating accommodation”, citing a sharp increase in the liquidity of the banking system. The central bank will continue to attract liquidity, the leader added.

If the reduction of liquidity is not completely completed, it makes sense to take a “withdrawal from accommodation” position. When the inflation path materially approaches the 4% target, this would be a good time to change attitudes.”

Excess liquidity in the banking system remained above 2 trillion rupees ($24.25 billion) in June, while nearly 1.8 trillion rupees of withdrawn 2 trillion rupee notes were returned, of which more than 85% was deposited in bank accounts, said central bank.

This situation forces central banks to conduct reverse repos for two to fourteen days and this operation is expected to continue in the short term.

A 14-day floating rate reverse repo auction is the main tool a central bank will use to draw liquidity, and if necessary, it can also engage in short-term repo auctions, but an everyday reverse repo is not our base case. ($1 = 82.4810 Indian rupees)