In a chat with ET Now, Marie Diron, Moody’s Investors Service, says also expects that it will take some time and before banks are able to lend to corporates and before corporate are also willing to borrow. Edited excerpts
ET Now: What is your first reaction, do you think the vote is for continuity when it comes to the change of guard at Reserve Bank of India?
Marie Diron: Yes we do expect continuity of really two key sets of policies by the RBI. One is in terms of inflation, inflation expectations. We expect that the policy will be credible and effective in maintaining moderate inflation and recently the target was confirmed that is 4% plus or minus 2% that would help anchoring this inflation expectations around the current moderate levels. The second set of policies is around the clean-up of the banks’ balance sheets and there the work has started. Non-performing loans are being recognised and we expect some continuity there. We also expect that it will take some time and before banks are able to lend to corporates and before corporate are also willing to borrow.
ET Now: Your official statement puts it at two sets of policies in decisions by the Reserve Bank of India, relevant to India’s sovereign credit profile. When can we expect a very serious review of India’s sovereign rating?
Marie Diron: India’s sovereign rating is at BAAA3 with a positive outlook. What this positive outlook captures is our assessment that gradually policies – fiscal, monetary policy and economic policies are moving towards a more stable macroeconomic environment. We have seen some steps in that direction over a year or two and we have seen a narrowing of fiscal deficit, narrowing of the current account deficit and more moderate inflation.
We have also seen some of the effects of a tighter policy setting in the form of more moderate, more subdued nominal GDP growth and that has weighed on corporate profits and in turn on investment willingness and capacity and so we expect really further gradual policy steps and further gradual see through of these policies to the economy over the next few years.