RBI rate cut to have minimal credit impact: Fitch

Posted By: Staff
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New Delhi, Jan 20 (IANS) Ratings agency Fitch Tuesday said that the surprise decision by Reserve Bank of India (RBI) to cut its rate policy will not have any significant credit impact in the short term.

According to the ratings agency, the rate cut is expected to only have a modest effect on Indian banks.

RBI rate cut to have minimal credit impact: Fitch
"The banks are likely to lower lending rates due to the decision, and lower borrowing costs will provide some breathing space for highly levered corporates and sectors which have struggled with interest coverage amid slowing growth over the past several years," the ratings agency said.

"However, the extent to which this would have a long-term positive effect on bank asset quality remains uncertain," the agency said.

On the prospects of more monetary easing, the agency said that it will then lead to a sustained lowering of borrowing costs and potentially stronger bank asset quality.

"The extent to which the RBI will have more room to cut interest rates depends on domestic and external factors including inflation expectations, and commodity and food price growth," it said.

"Whether the government presents a robust fiscal consolidation strategy and continues implementing structural reforms to ease supply pressures, particularly in the infrastructure sector, also are likely to influence future RBI decisions," the agency said.

The ratings agency added that upcoming budget which is due by the end of February will give a greater clarity on the fiscal policy direction.

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