MUMBAI - India's current policy rate provides just enough headroom to weigh the impact of interest rate actions taken so far on inflation and growth, the Reserve Bank of India (RBI) said in a bulletin released on Friday.

The current rate also satisfies the so-called Taylor rule, a widely used monetary policy framework that stipulates interest rates should rise by more than the increase in inflation after smoothing out temporary price changes, the RBI said.

On April 6, the monetary policy committee surprised markets by holding the key lending rate steady at 6.50% in a unanimous decision, going against expectations of a 25-basis-point hike.

"At this point, the level of policy rate at 6.5% is 1.25 times the level of inflation four quarters ahead," the RBI wrote in an article on the State of the Economy. MPC has projected inflation of 5.2% in the fourth quarter of this fiscal year ending in March 2024.

The RBI said the current rate scenario gives it some leeway to assess the impact of aggressive rate hikes it implemented in the past year to rein in inflation.

"The promontory that monetary policy in India has achieved until now provides just enough headroom to weigh the impact of actions taken so far and to strategise the appropriate response should actual inflation prints deviate from the projected path," the RBI wrote.

India's current rate tightening cycle may not be over as more hikes could be warranted to align inflation towards the central bank's medium term target of 4%, minutes of this month's Monetary Policy Committee (MPC) meeting showed on Thursday.

The central bank, in the bulletin, also said that expectations of a bumper winter harvest, the fiscal thrust on infrastructure, and a revival in corporate investment in select sectors augur well for the economy.

"In time, enduring price and financial stability will strengthen the foundations of the economy and provide a fillip to growth," it added.

(Reporting by Swati Bhat; Editing by Dhanya Ann Thoppil)