The Reserve Bank of India's (RBI) monetary policy announcement may indicate the central bank will water down its previous inflation-targeting framework, according to Nomura analysts.
On Tuesday, the central bank surprised the market with a 25-basis-point cut to its policy repo rate, or the rate at which it lends to banks, to 6.25 percent.
It set its medium-term inflation target at 4 percent, within a band of plus or minus 2 percent, but maintained the 5 percent target by March 2017.
The target for the real neutral interest rate, or the rate at which the economy is growing at its trend rate with stable inflation, was also lowered to 1.25 percent on the back of lower global rates, from an earlier range of 1.5 to 2 percent.
"We believe that there has been a dilution of the tenets of flexible inflation targeting framework under the new regime compared with the old regime," said Nomura analysts Sonal Varma and Neha Saraf in a Tuesday note.
They noted that under the old regime, led by former Governor Raghuram Rajan, the RBI was clear about lowering inflation to 4 percent by March 2018 and keeping it there. The new medium term target was "too wide a range, without a specific time commitment to the midpoint."
Consumer price inflation in India eased to 5.05 percent on-year in August, compared with July's 6.07 percent, on the back of slower rises in food prices. Wholesale prices were up 3.74 percent on-year, a touch higher than July's reading of 3.55 percent, but below market expectations.
Analysts, however, pointed out most of the growth drivers were consumption-oriented, which could put pressure on prices in the future.