RBI decision to keep rates unchanged was no surprise: Moody's

Marie Diron, Senior Vice President, Sovereign Risk Group, Moody’s Investors ServiceThe Reserve Bank of India’s (RBI) decision to leave policy interest rates unchanged today was no surprise to market participants, in line with transparent and predictable monetary policy.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 percent +/-2 percent through to 2021 denotes ongoing commitment to keeping inflation at moderate levels. 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.The larger than average monsoon rainfall will help maintain moderate food price inflation, contributing to keeping headline inflation within or close to target this year. Medium-term, we assume that 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. When the full recommendations are implemented, further inflationary pressure could arise as a consequence of the 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.