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The independence of the Reserve Bank of India appears to be intact, experts said after a closely-watched board meeting of the central bank concluded.
After a nine-hour meeting on Monday, the RBI board decided to form an expert committee to look into how much the central bank should hold in its reserves.
"The independence of the central bank is still intact without the institution experiencing excessive pressure from the government," Rajiv Biswas, chief economist for Asia Pacific at IHS Markit, told CNBC by phone on Tuesday. "Some were expecting a fall out — this was a better outcome than expected."
The meeting has been closely monitored by investors because of heightened tensions between the RBI and the Indian government in recent weeks. Those issues include: monetary policy rates, easing lending restrictions as well as New Delhi's push to access surplus reserves from the RBI to boost the economy.
Prime Minister Narendra Modi's government has pressured the central bank to ease restrictions on how much capital India's troubled banks should hold. Less stringent rules would allow banks to lend more, so that small and medium enterprises can obtain loans more easily. That comes amid concerns struggling small businesses could hurt the government's prospects in the upcoming general elections next year.
The central bank's board is made up of representatives from the RBI, government officials and independent directors nominated by New Delhi.
"Central banks with substantial reserves have gone through discussions on the amount of reserves that should be left to accumulate, and the best way for some of the reserves to be used," Biswas said. "This is a complex issue — thus, a panel to discuss this deeply was the best measure to take," he said, adding that the debate on how to use the reserves has been going on for many years now.
At Monday's meeting, the RBI board also asked the central bank to ease certain rules for loans of up to 250 million rupees ($3.49 million) to small and medium businesses — that particular segment is a key contributor to economic growth and has been hit hard by major reforms such as demonetization and the implementation of India's goods and services tax (GST).
It also agreed to extend a deadline for lenders to lift their capital conservation buffers — part of the required capital that banks must hold to make themselves more resilient — so that they can lend more, at a time when credit expansion remains sluggish.
"The capital requirement on banks in India is actually higher than what's required globally," Radhika Rao, an economist at DBS, told CNBC's "Capital Connection."
"That was one of the disagreement points where the RBI actually has a 1 percent buffer for the local banks," Rao said. She explained that the overnight change only extended the timeline for local banks to comply with the RBI's requirement — the rule is still in place.
"But in the short term, it brings relief because the capital infusion requirements from the government has gone down, so it gives them a bit more breathing space," she said, referring to New Delhi's plans to rescue troubled lenders by injecting more money into them.
The standoff between the central bank and the government is not over yet, according to some experts.
Monday's meeting was a bit of an "impasse" between the central bank and the government, according to Shilan Shah, senior India economist at Capital Economics.
"I think the meeting has most likely just kicked the can down the road in terms of solving these issues," he told CNBC's "Squawk Box" on Tuesday. "I don't think we've seen any measures that have been too drastic, actually being taken ... we don't think that this issue has been fully solved yet."
While Shah said the central bank and the government appeared to be "meeting in the middle," he predicted that "there is still more to come from this."
"If we do see a real, sharp loosening of lending restrictions in the future or a very big surplus transfer to the government, then there would be even greater concerns about the RBI's independence," Shah added.
Economists have argued that central bank independence is important for a country to keep its inflation rate low and stable. The debate between governments and central banks is age-old. While the governments tend to look at short-term targets, central banks generally focus on longer-term targets for the economy and in doing so are given complete autonomy.
Countries where central banks are deemed not to be independent from political influence have seen a hit on their currencies — most recently in Turkey.
Worries about global trade, economic meltdowns in Argentina and Turkey, and tighter monetary policy in the United States have put pressure on emerging markets such as India who are dependant on the flight of capital from developed economies. Last month, the rupee sank to record lows, which was attributed to rising oil prices — India is a major crude importer — and a widening current account deficit.
Meanwhile, the ongoing crisis in India's banking sector has left most state lenders hamstrung with mounting levels of bad loans, investigations into fraud and restricted growth opportunities.
Some experts have suggested that there could be potential destabilization in the financial system as the banking system is weighed down by the bad loan resolution process while non-banking finance companies face restricted credit lending. That could point to a much weaker growth in 2019 — something the government appears keen to avoid in an election year.
Instead, the government wants to see India's growth numbers climb higher while the RBI's perspective is that the economy is already strong, Shah said.
He explained that growth has been at a two-year high with most of the spare capacity being used up — that implies further growth could potentially see prices starting to rise as demand outpaces supply. Boosting growth by lowering interest rates would be a "misstep," he said.
"I just think that the government was essentially hoping for much looser (monetary) policy in the run up to the election but then that's attempting to receive a short-term boost, potentially at long-term cost, if it leads to a very big spike in inflation," Shah added.
— Reuters contributed to this report.