Transmission, not rate cuts, to drive growth, upgrade: Moody's

Moneycontrol BureauGlobal rating agency Moody’s Tuesday said more than the RBI’s monetary policy stance, transmission of the policy will be key to driving economic growth and a possible rating upgrade.Broadly, Moody’s expects inflation to be stable around current levels despite short term spikes, but warned of risks.“Despite favourable weather forecasts, India is not immune to the risk of a renewed rise in food prices,” said a note by Marie Diron, SVP, Sovereign Risk Group, Moody’s Investors Service.A possible depreciation in the rupee because of adverse global events was the other big risk to the inflation target of 5 percent by January 2017.“Moreover, with details of the implementation of the Pay Commission’s recommendation still unclear, the outlook for wage, housing and overall consumer price inflation remains uncertain and subject to upside risks,” the note said.The rating agency has said that the transmission of monetary policy will depend on progress in the clean-up of bank 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, “ the note said, adding that RBI’s accommodative monetary policy stance was unlikely to translate into a rapid expansion of credit and markedly higher growth in the near term.On the positive side, Moody’s feels the change in the RBI’s management of liquidity should support transmission of monetary policy, although it will take a few months.