Improve ratings
Projecting a realistic picture of the economy is a crucial step towards avoiding further rating downgrades. Though many of Chidambaram's predecessors have held the Reserve Bank's ruthless interest rate hikes in the past two years responsible for negative ratings, RBI Governor D. Subbarao has been unrelenting. The central bank is unlikely to ease the rates anytime soon. Sovereign rating methodologies put a lot of weight on the fiscal condition, which makes addressing the fiscal situation a priority. But with the inflation raging and investments dropping, the fiscal situation is on shaky knees. “The inflation in August is likely to remain high. Given the situation, the RBI, too, is not expected to offer much relief by cutting interest rates in its next evaluation,” said Dharmakirti Joshi, economist at CRISIL. Consumer inflation, which affects the lives of individuals more directly, has been in double digits for the past four months. So, the RBI wants the government to address reasons for a slowdown other than the rate cut. “We have come to a rough conclusion that about a third of the slowdown is due to interest rate hikes and the rest due to a combination of other domestic and some global factors,” said Subir Gokarn, RBI deputy governor, in a television interview.
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