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After rate cut, govt pitches for rating upgrade

Source: PTI
March 04, 2015 13:28 IST
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Soon after RBI announcing a much- awaited rate cut, Chief Economic Advisor Arvind Subramanian on Wednesday said that the global rating agencies should look at upgrading their stance on India's credit outlook.

"Now we have a 50 basis points rate cut (in two tranches within two months) and I think that is good for the economy and all rate cuts benefits... If the outlook is looking good, the rating agencies should draw their lessons from that om improving the outlook," Subramanian told reporters.

After presentation of Union Budget 2015-16 last week, global and domestic agencies had ruled out any immediate upgrade in India's sovereign ratings and had red-flagged the country's delayed fiscal consolidation roadmap and had also warned against any slippages from the "ambitious" disinvestment plan proposed in Budget.

Subramanian said that the rate cut is consistent with the government's views in the last week's Economic Survey and thereafter in the Union Budget for the outlook on inflation and for the outlook on overall economy.

"It (rate cut) shows that RBI and government are on the same page in terms of how we view the economy.

It also means that Budget can be seen as conducive to non-inflationary growth," he added.

On monetary policy framework agreement, Subramanian said that both Finance Ministry and RBI have shared concern about inflation.

Recently, the Finance Ministry and the Reserve Bank agreed to 'inflation rate targeting' under which the apex bank will aim to lower retail inflation to below 6 per cent by January 2016 and further to around 4 per cent by March that year. Budget 2015: Complete Coverage

On the next financial year's GDP growth projection, Subramanian said that, "In the Survey, we have increased the projections by 0.6-1 per cent on growth rate, relative to previous year and those increases were predicated on four factors."

Those factors included decline in oil prices, reforms being undertaken, monsoon being better and other conditions.

The Reserve Bank today surprised markets by reducing the benchmark interest rate by 0.25 per cent to 7.5 per cent on the back of softening inflation and the government's commitment to continue the fiscal consolidation program.

The short term lending rate (repo) has been reduced from 7.75 per cent to 7.5 per cent with immediate effect, while other rates would be adjusted accordingly, RBI Governor Raghuram Rajan announced early this morning. This is the second time in less than two months that the RBI has cut interest rates outside the regular policy reviews.

Photograph: Reuters

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