RBI rate to have minimal credit impact | Fusion - WeRIndia

RBI rate to have minimal credit impact

RBI rate

Ratings agent Fitch has stated on Tuesday that the surprise decision by Reserve Bank of India to cut rate policy will not have any major credit impact in the short term. Fitch has further added that the rate cut is expected to only have a minimum effect on Indian banks.

The agency has stated that this decision could cause the banks to lower lending rates and reduced borrowing costs will provide some breathing space for corporates and sectors which are highly levered and have struggled with interest coverage and slowing growth in the past several years. However, the long term positive effect on bank asset quality by this decision is still uncertain.

The agency has added that the extent to which the RBI might cut interest rates further depends on domestic and external factors like inflation expectations, and commodity and food price growth. RBI’s future decisions could likely be influenced by whether the government presents a robust fiscal consolidation strategy and continues implementing structural reforms to reduce supply pressure, especially in the infrastructure sector.

Image Credit: Soham Banerjee / CC BY 2.0

Image Reference: https://commons.wikimedia.org/wiki/File:Reserve_bank_of_India_Headquarters.jpg

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