Rate cut doesn't change sovereign credit profile overnight: Fitch

MUMBAI: International rating agency Fitch today said that 25 basis point repo rate cut may not result in an improvement in sovereign credit profile in the short run.

Reserve Bank Governor Raghuram Rajan today lowered the repo rate by a token 0.25 per cent to 7.75 per cent two weeks ahead of the scheduled monetary policy on February 3.

The central bank's decision came after data pointed to a stable inflationary regime and some pick-up in economic activity.

"The 25 basis points rate cut does not change the sovereign credit profile overnight," Fitch Ratings director for sovereign ratings Thomas Rookmaaker said in a note.

"From a rating perspective, what matters is whether a credible low inflation environment will be created in the country. Both the RBI and the government have taken measures in that regard," he said.

The fiscal position is a long-standing key weakness in the country's sovereign credit profile and, hence, fiscal consolidation that would bring down the high public debt burden would improve the sovereign credit profile, he said.

"It will be interesting to see if the budget will include a clear and credible strategy to improve the fiscal position," he said, adding though the timing of today's rate cut has come as a surprise.

"The path of inflation, while below the expected trajectory, has been consistent with the assessment of the balance of risks in the RBI's bi-monthly monetary policy statements," the RBI said in a release.