Latest out-of-policy rate cut not a surprise: Atsi Sheth, Moody's

In a chat with ET Now, Atsi Sheth, Moody's, shares her views on the latest RBI rate cut. Excerpts:

ET Now: Your initial reaction to this out-of-policy rate cut?

Atsi Sheth: This is now the second out-of-policy rate cut; so it is becoming less and less of a surprise.

The direction too is not much of a surprise again. We have already had announcements on the inflation-targeting framework. In the Budget, there was a policy consensus around continued fiscal consolidation and disinflationary pressures. That has now resulted in monetary reaction.

ET Now: Could it be global factors that led to this cut by the RBI?

Atsi Sheth: One big global factor right now is oil prices. But while those have come off significantly in the last half year or so, they have begun to firm up again. So there is no certainty that oil prices will remain completely benign over the next year-and-a-half.

RBI's monetary policy statement does emphasise that it is not so much the deficit target itself, it is really the structural and supply-side reforms which are in focus.

These supply-side reforms will lead to supply responses which has been the key factor behind inflation in the years behind us. There was too much demand and not enough supply. That is why we had inflation.

The RBI is looking at fiscal policy as something that will alleviate supply-side pressures.