BackLow inflation key to India’s rating profile, says Fitch Ratings
Fitch has retained India's sovereign rating at the lowest investment grade of BBB-, with a stable outlook
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New Delhi: If India can maintain structurally low inflation under the new monetary policy framework, it can positively impact the sovereign rating profile of the country as it will improve investment climate and contribute to sustainable growth, Fitch Ratings said on Friday.
Fitch has retained India’s sovereign rating at the lowest investment grade of BBB-, with a stable outlook.
Thomas Rookmaaker, director at Asia-Pacific Sovereigns Group of Fitch Ratings, in a statement said while the inflation target range is rather broad (in the sense that 2% seems quite low and 6% quite high) for an emerging economy like India, it seems to make sense to have a rather broad range around the 4% mid-point as food and oil price movements can have a large impact on headline inflation.
“The MPC (monetary policy committee) would theoretically target the range around the mid-point and not one of the outer points specifically, but it is too early to tell if inflation will in practice be skewed to one side of the range," he said.
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On differences of opinion between government and the Reserve Bank of India (RBI) on interest rate cuts, Rookmaaker said it is 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, but it will be interesting to see how this will play out in the monetary policy committee, in which members appointed by both the government and RBI will have a vote on monetary policy," he said.
On the new RBI governor Urjit Patel, Rookmaaker said as a rating agency, Fitch looks at actual policies rather than personalities. “The fact that Dr Patel has served as deputy governor in the past three years suggests continuation of the current policy direction in the years ahead. Dr Patel was part of the team at RBI that set in motion significant policy changes to deal with both high inflation and weak bank balance sheets, including through the set-up of new policy frameworks. Dr Patel seems well positioned to further institutionalize these policy changes in the period ahead," he added.
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