BackFitch affirms India’s ratings at 'BBB-', retains stable outlook
The ratings agency expects India's growth to gradually recover to 5.6% in FY21 and 6.5% in FY22Fitch expects the RBI to cut its policy rate by another 65 basis points in 2020
PremiumFitch Ratings has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a stable outlook. “Our outlook on India's GDP growth is still solid against that of peers, even though growth has decelerated significantly over the past few quarters, due mainly to domestic factors, in particular a squeeze in credit availability from non-banking financial companies (NBFC) and deterioration in business and consumer confidence," Fitch said.
Fitch expects growth to slow to 4.6% in the financial year ending March 2020 (FY20), from 6.8% in FY19, which is still higher than the 'BBB' median of 2.8%.
The ratings agency expects growth to gradually recover to 5.6% in FY21 and 6.5% in FY22 with support from easing monetary and fiscal policy and structural measures that may also support growth over the medium term.
“The affirmation of the ratings incorporates our expectation of moderate fiscal slippage relative to the central government's deficit target of 3.3% of GDP in FY20. The government is again facing a trade-off between stimulating the economy and reducing the deficit in the medium term. Some fiscal slippage has occurred in recent years against government targets, even during periods of sustained stronger growth," it added.
“We believe there is a risk of more significant fiscal loosening in the event of continued weak GDP growth, for example, in the context of lingering problems in the NBFC sector," it said.
Last month, India’s credit ratings outlook was cut to negative from stable by Moody’s Investors Service on concern the government won’t be able to help stunted economic growth. Moody’s cited a growing debt burden and the government’s struggle to narrow the budget deficit. Moody's affirmed the nation’s foreign issuer rating at Baa2, the second-lowest investment grade score.
Fitch expects the Reserve Bank of India (RBI) to cut its policy rate by another 65 basis points in 2020, after a cumulative 135 bps easing since February 2019. The uptick in inflation to 5.5% yoy in November appears to reflect a temporary spike in food inflation, while pressure on core inflation, which remained stable at 3.5%, seems limited in the current environment, it added.
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