BackMoody’s says India’s rating revision depends on reform process
Moody's cautions it will revise India rating outlook to stable from positive
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New Delhi: Rating agency Moody’s Investors Service on Tuesday cautioned that it would revise India’s rating outlook to stable from positive at present if there is a reversal of the policy reform process, if banking system metrics continue to weaken or if there is a decline in foreign exchange reserves coverage of external debt and imports.
In its annual update to the market, titled Credit Analysis: India, Government of, the rating agency said the rating could be upgraded if its expectations of gradual but credit-positive reforms are realized in actual policy implementation and if the recent improvement in inflation, fiscal and current account ratios is sustained.
In April, the rating agency changed its outlook on India’s rating to positive from stable while maintaining the lowest investment grade status, based on its view that proposed and implemented policies are likely to lower sovereign credit risk by stabilizing inflation, improving the regulatory environment and increasing infrastructure investment while maintaining the ongoing improvement in fiscal ratios.
To calm down the high volatility in the Indian rupee, Reserve Bank of India (RBI) governor Raghuram Rajan on Monday said India has sufficient foreign exchange reserves to prevent any undue volatility in currency markets.
“India has $355 billion of reserves and another $25 billion because our forward dollar sales are not due for the next one year; so, we have $380 billion to play with if needed," Rajan said on the sidelines of a banking conference in Mumbai. “...we try to prevent undue volatility. If we see undue volatility, we have the resources to deal with it."
Moody’s Analytics, the research arm of Moody’s, last week reduced its growth projection for India to 7% from 7.5% estimated earlier, blaming below-normal monsoon and its impact on rural demand and interest rates.
The government expects gross domestic product (GDP) to expand 8% in 2015-16. The International Monetary Fund and the Asian Development Bank have forecast growth of 7.5% and 7.8%, respectively.
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