RBI should continue with Rajan’s policies on inflation: Moody’s

Background: Monetary policy, Inflation, India’s GDP growth, Consumer Price Index (CPI) inflation, Goods and Services Tax (GST), RBI, Moody’s Investors Service.

  • Moody’s Investors Service has said that RBI Governor Raghuram Rajan’s policy of maintaining a tight leash on inflation has showed results and the Reserve Bank should continue with similar policies and communication going forward.
  • Moody’s Investors Service official said credibility and effectiveness of monetary policy are factors which impact India’s sovereign ratings.
  • Moody’s has a Baa3 rating on India with a positive outlook.
  • In the last two years, India’s inflation has fallen to more moderate levels, likely in part because of more credible monetary policy that has anchored inflation expectations.
  • A monetary policy with tight leash on inflation is important especially in India where (in the past) inflation had risen to very high levels, negatively affecting growth and investment prospects.
  • CPI or retail inflation rose by 6.01 percent in June, the fastest pace in 23 months and it is expected that the implementation of the new GST may push up inflation further.

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