Moody's on Tuesday maintained its stable outlook on India's sovereign rating saying the present depreciation in rupee, weaker economic growth and the fiscal and current account deficits have already been taken into account in the Baa3 sovereign rating.
Standard & Poor's, too, maintained its negative outlook on India's BBB- sovereign credit rating on Tuesday while acknowledging that the recent measures taken to restrict capital outflows have increased uncertainty among investors.
Moody's stated that while the current rupee depreciation may be a new development, the factors that underpin it are not. The current sovereign rating of Baa3 incorporates the macroeconomic challenges of weaker growth, the steep plunge of the rupee and the twin deficits, the agency said.
Moody's retained the sovereign rating even after the domestic currency testing a new low of 64.13 against the dollar on Tuesday, saying India's macroeconomic challenges were a constraint on the rating, which prevented the rating from moving higher even when growth was in the 7-10% range.
It will be very challenging for the government to meet fiscal deficit target of 4.8%, the agency said, quoting Atsi Sheth, Moody's Investors Service vice-president. Sheth further said the problems the country now faces are a reflection of the current global growth and financial environment.
As global growth and financial environment has turned less benign than it was in the last decade, India's long-standing macroeconomic challenges are revealed in weaker growth, current account and currency metrics. "However, the credit analysis that underpins our rating for India has incorporated these long-standing challenges,” she said.
Standard & Poor's maintained its negative outlook on India's BBB- sovereign credit rating and said if the uncertainty continues, business financing conditions could deteriorate further and investment growth could slow further.
"India's long-term growth prospects could weaken on a sustained basis, with negative implications for the sovereign credit fundamentals," a news agency said, quoting S&P senior director, Sovereign and International Public Finance Ratings (Asia-Pacific), Kim Eng Tan.