Arjuna L Mahendran, chief economist and strategist at Credit Suisse said, that the Bank of Japan decision is in line with expectations. Bank of Japan was prudent in not raising rates and will reassess the situation by mid-July.

Excerpts from CNBC - TV18's exclusive interview with Arjuna L Mahendran:

What did you make of what the Bank of Japan has to say today?

It wasn't a surprise to me that they decided not to go ahead with a rate increase. Particularly, in the light of what has happened to the stock markets, not just in Japan, but globally. The Japanese recovery is being viewed. These stabilizing factors like stocks market crash could clearly set them back.

So I think Bank of Japan was very prudent in not raising rates. On the other hand Governor Fukui came out with a very strong statement saying that as far as the Bank was concerned they did not see any major changes in the fundamentals of the Japanese economy. They still have the option to raise rates in the near future.

I reckon they will probably re- assess the situation in mid July and decide what to do at that point.

What impact do you see on global liquidity now? How do you map Bank of Japan's move with what is happening with global liquidity conditions?

It is interesting that Bank of Japan has retreated from its earlier position, where it tried to remove all the excess liquidity that it had been creating in the Japanese money market. Since 2004, it has targeted 35 trillion yen, that is 35,000 billion yen of excess liquidity in the overnight markets to keep interest rates as Zero.

It has sharply reduced over the last six months; was down at one stage to 10 trillion Yen and then over night rates started moving up. At that point, I think Japanese yen started strengthening and as a consequence the currency market went into turmoil.

I think Bank of Japan has realized that it has to be extremely cautious because the Japanese economy is the second largest economy in the world. The Japanese stocks market is also the second largest exchange, so whatever they do in Japan has global implications.

Going ahead, I think we are going to see more cautious attitude from Bank of Japan in terms of try and stamp out inflation.

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