Sunday, September 4th, 2016

Urjit Patel will bring institutional reforms at RBI, says credit agency Fitch

Jayakrishnan VU | September 4, 2016 8:45 pm Print
The new RBI chief is likely to bring changes in fiscal policies aimed at improving India's credit rating

Soon-to-be RBI Governor Urjit Patel will help in institutionalizing monetary policies to take the country to an era of major changes aimed to fight inflation and check the coffers of banks, said international credit rating agency Fitch.

India’s credit rating will witness a positive change if it can maintain low inflation to improve investment climate, the agency said.

Fitch said an inflation rate around 2% is quite low and about 6% is very high for an emerging economy like India. “But it seems to make sense to have a rather broad range around the 4 per cent midpoint, as food and oil price movements can have a large impact on headline inflation,” stated Fitch Director for Asia-Pacific Sovereigns Group, Thomas Rookmaaker.

He added that such an inflation rate would “positively impact the sovereign rating profile as it would improve the investment climate and, hence, contribute to sustainable growth”.

The agency said it’s ratings are based on policies and not on personalities, when asked about the new rating for India on the occasion of appointment of new RBI chief.

Patel will assume office as new RBI Governor next week. “The fact that Patel has served as deputy governor in the past three years suggests continuation of the current policy direction in the years ahead. Patel seems well-positioned to further institutionalise these policy changes in the period ahead,” Rookmaaker said.

Asked to clarify their opinion on differing stands by RBI and the government on monetary policy, Fitch officials said, such issues are “rather common”. “But the question is to what extent the central bank is actually pressured to follow the government’s line. The inflation targeting framework now in place, should reduce the impact of such pressures…,” he said.

More importance should be given how such changes will shape the decisions of the Monetary Policy Committee.

Jayakrishnan VU
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