Predicting that a worsening fiscal position because of repeated tax cuts would further weaken investor confidence in India, Moody's today said now it is for the Reserve Bank of India (RBI) should to take measures to revive the economy.
Moody's Economy.com, an arm of Moody's group, projected that growth in the Indian economy will further decline to 6.1 per cent in the October-December period of 2008, the data for which would be out on Friday.
"India's growth momentum is easing, and the policymakers must act to support the economy. However, given the government is cash strapped, it is time for the RBI to join in again in reviving the economy," the firm said in a statement here.
Moody's expected the RBI to keep trimming the repo rate, which is the rate at which banks borrows money from the RBI, in exchange of the government securities for short term to 4 per cent from the current level of 5.5 per cent.
"Compared with the government, the central bank certainly has more room to exercise its policy tools. For growth to remain strong, the central bank needs to ensure ample liquidity and low interest rates," it said.
Inflation has markedly decelerated in the recent weeks, and interest rates must follow suit to maintain a loose monetary policy stance, the statement added.