RBI's steps to revive growth credit positive: Moody's

Says raising FII limit in govt debt will help stabilise currency rates

Global ratings agency Moody's today said that recent decisions by the Reserve Bank of India will be credit positive for India's sovereign rating.

RBI recently raised the amount foreign institutional investors (FIIs) can buy in government debt to $25 billion from $20 billion. The move is expected to spur FII investment in debt. 

 

As a spin-off, it will accelerate growth by helping stablise domestic market interest and currency rates, Moody's said in a statment today. 

 

India's rating is "Baa3 stable". 

 

Also, since the hike in limit is small, the sovereign's exposure to to fluctuations in international risk appetite remains limited, it added. 

RBI eased lending norms for infrastructure projetcs last week. It also proposed to raise the capital requirements on domestic systematically important banks.
 

Last year, RBI had hiked interest rates to curb inflation and currency volatility. But higher intetest rates have constrained India's economic growth. It has also impacted banks profitability and asset quality. 

 

"The exchange rate pressures have subsided this year and inflation has cooled. Yet, uncertainty around global commodity price trends and the prospects of rising food inflation owning to a weak monsoon season in June and July, will preclude the RBI from implement significant monetary stimulus this year," Moody's said. 

 

Instead, RBI is expected to to exercise its supervisory and regulatory authority to nudge growth towards sustainable acceleration, it added.