Rate cut transmission will impact Indian economy, says Moody's

Reserve Bank of India has not made any changes in the policy rates, but meanwhile, Moody's Investors Service has said that the transmission of interest rate cuts will leave an impact on India's economic development and credit profile.

It added that status quo on monetary policy was majorly in line with what the market expected, and there could be some hikes in inflation which would be driven by food prices but would be short-lived.

"Looking forward, we do not expect a significant change in the monetary policy stance. Rather, the transmission of monetary policy will influence India's economic development and credit profile," said Moody's Investors Service SVP (Sovereign Risk Group) Marie Diron.

Reserve Bank of India, in its second bi-monthly policy review for the fiscal, maintained status quo on the interest rate and estimated economic growth at 7.6% while keeping the retail inflation target at 5% for January next year.

Moody’s added that transmission of monetary policy will depend on the progress made in the clean-up of banks' balance sheets.

"While the process has started, we do not expect rapid progress and a significant change in the ability and willingness of banks to increase lending or in corporates' appetite for borrowing," Diron said.

Image source