The Reserve Bank of India’s unexpected 25 basis points rate cut does not change the country’s sovereign credit profile, an analyst at Fitch Ratings told Reuters on Thursday.
Instead, Thomas Rookmaaker, a director at Fitch in Hong Kong, said government fiscal consolidation and the creation of a “credible low inflation environment” were more important factors.
“The fiscal position is a long-standing key weakness in India’s sovereign credit profile and, hence, fiscal consolidation that would bring down the high public debt burden would improve the sovereign credit profile,” Rookmaaker wrote in an emailed reply to questions from Reuters.
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“It will be interesting to see if the budget will include a clear and credible strategy to improve the fiscal position.”
Rookmaaker also said the government seemed determined to reach the fiscal deficit target of 4.1 percent for the current fiscal year with last minute measures, including cuts in spending, as revenue forecasts were “over-optimistic from the start.”