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Curtailing independence of central bank will be credit negative: Moody’s

11 Dec 2018 Evaluate

Amid Urjit Patel’s unexpected resignation as the Reserve Bank of India (RBI) governor, Moody's Investors Service has said that independence of the central bank is an important consideration in assessing a country's institutional strength and any attempt to curtail would be credit negative. It added that while the motivation for the RBI Governor's resignation is unclear, the independence of a country's central bank is an important consideration in their assessment of a sovereign's institutional strength.

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

Urjit Patel, whose three-year term was to end in September 2019, is the first governor since 1990 to step down before his term ended. Patel cited personal reasons for his resignation. Patel's resignation came four days ahead of the December 14 meeting of the central bank that is scheduled to discuss issues of simmering differences with the government.

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