Unchanged interest rates not surprising: Moody’s

Unchanged interest rates not surprising: Moody’s

Chennai, Aug 9 (IANS) The Reserve Bank of India’s (RBI) decision to leave the policy interest rates untouched was in line with the predictable and transparent monetary policy, said global credit rating agency Moody’s Investors Service.

The central bank’s decision to leave policy interest rates unchanged on Tuesday was no surprise to market participants.

“In the next few months, we expect continuity in the RBI’s policymaking. In particular, the government’s notification of the inflation target at 4 per cent +/- 2 percent through to 2021 denotes ongoing commitment to keeping inflation at moderate levels,” Marie Diron, senior vice president, Sovereign Risk Group was quoted as saying in a statement issued by Moody’s.

“Meanwhile, the formation of a monetary policy committee is in line with common practice in many central banks around the world. We do not expect the RBI’s shift to such a structure to have any significant implications for the conduct of monetary policy,” Diron added.

According to Diron, the larger than average monsoon rainfall will help maintain moderate food price inflation to keep the headline inflation rate within or close to target this year. In the medium-term, the inflation will remain moderate.

“There are upside risks related to the implications of the rise in public sector wages with the implementation of some of the Pay Commission’s recommendations. Should higher wages boost consumption significantly, inflationary pressures could rise,” Diron said.

According to Diron, inflationary pressure could arise when the full recommendations are implemented due to increase in housing allowances.

“However, the less accommodative monetary policy stance at present than in 2009-13, when the RBI’s policy interest rates were well below inflation, mitigates these risks,” Diron said.

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