Curtailing central bank's independence will be credit negative: Moody's

Urjit Patel, whose three-year term was to end in September 2019, is the first governor since 1990 to step down before his term at the RBI ended.

A central bank’s independence is an important consideration in assessing a country's institutional strength and any attempt to curtail would be credit negative, said Moody's Investors Service after Reserve Bank of India (RBI) governor Urjit Patel resigned on Monday.

Patel, whose three-year term was to end in September 2019, is the first governor since 1990 to step down before his term ended.

"While the motivation for the RBI Governor's resignation is unclear, the independence of a country's central bank is an important consideration in our assessment of a sovereign's institutional strength," said Moody's in response to question about the RBI.

It said that Moody's assumes that the RBI will continue to pursue price and financial stability and implement policies towards these goals.

"We would consider signs that the government attempts to curtail the central bank's independence to be credit negative. That said, our assessment of institutional strength ultimately focuses on the quality and policy outcomes of the institutions themselves, not on the individuals leading them," Moody's said.

Patel's resignation came four days ahead of the December 14 meeting of the central bank that is scheduled to discuss issues of simmering differences with the government.
 

Patel cited personal reasons for his resignation, but industry watchers say there were undercurrent since the government cited hereto never-used-before provisions of the law to bring him to negotiating table on issues it felt were of national interest.