India put on alert by Moody

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In the backdrop of RBI Governor Urjit Patel’s resignation, Moody’s Inves-tors Service on Monday said that the independence of a country’s central bank is an important consideration while asses-sing a country’s institutional strength and any attempt by the government to curtail it would be credit negative.

Dr Patel on Monday resigned from the post citing personal reasons. Patel, whose three-year term was to end in September 2019, is the first governor since 1990 to step down before his term ended.

To a query on the sovereign rating impact of the developments around the RBI, Moody’s said, “While the motivation for the RBI governor’s resignation is unclear, the independence of a country’s central bank is an important consideration in our assessment of a sovereign’s institutional strength.”

It said that Moody’s assumes that the RBI will continue to pursue price and financial stability and implement policies towards these goals. “We would consider signs that the government attempts to curtail the central bank’s independence to be credit negative. That said, our assessment of institutional strength ultimately focuses on the quality and policy outcomes of the institutions themselves, not on the individuals leading them,” Moody’s Investors Service said.

On Sunday, IMF’s chief economist Maurice Obstfeld said the Indian government must heed the RBI’s message on financial stability.

Addressing a group of journalists, he also said the IMF does not want politicians “manipulating” central banks for political ends.

“I think the central bank does have to be intimately concerned with financial stability to some degree and with the payment system,” the IMF chief economist added.  

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