Encouraged by India?s efforts to contain its fiscal deficit and inflation, global rating agencies Moody’s and Fitch have said they are unlikely to make any change in the country’s sovereign ratings in the short term, following the downgrade of US sovereign debt by another Standard & Poor’s. The statements came after S&P cautioned India of potential long-term consequences of a weaker global growth.
?… Recent developments (in the US and Europe) have not changed our view on India’s ratings and outlook,? said Atsi Sheth, Moody?s lead analyst for India, in a reply to an FE query.
Fitch Asia Sovereign Ratings director Art Woo said that the rating agency was encouraged by the recent response of the Reserve Bank of India in tightening monetary policy, which should help cool inflationary pressures. ?Though it appears that the Union Budget?s central government fiscal deficit target of 4.6% of GDP for 2011-12 may not be met due to the rising cost of subsidies, the potential slippage is unlikely to be significant,? said Woo, adding that Fitch was optimistic on the Indian authorities’ efforts to tackle the challenges of large fiscal deficit.
Earlier this month, S&P had lowered the US sovereign credit rating to AA+ and said it did not see an immediate impact of the move on India?s sovereign rating but warned there could be ?potential longer-term consequences of weaker global growth?, pointing to negative factors for the country.
Moody?s said that though the cloudy global growth outlook as well as the impact of domestic monetary policy tightening would impinge upon India?s growth in the near term, its healthy domestic savings and investment rates, propensity for domestic consumption and growing private sector competitiveness should keep the slowdown shallow. ?India’s ratings also incorporate its strong official foreign exchange reserve position and an expectation that the current account deficit will remain manageable,? it said.
Last month, Fitch retained India?s sovereign rating at investment grade, stating it had ?robust growth prospect? and solid external financial condition. The agency affirmed long-term BBB- rating for the country with stable outlook. BBB denotes a moderate default risk relative to other nations for investors. S&P too has rated India as BBB- for the long-term.
In 2010, Moody?s upgraded India?s sovereign local currency rating by a notch in light of its commitment to reforms. However, the upgrade of the government bond local currency rating to Ba1 from Ba2 is still a notch below investment grade. ?The positive outlook on India?s Ba1 rupee denominated government debt reflects Moody?s belief that although the general government fiscal deficit and debt ratios (as % of GDP) are above the median for comparably rated countries, strong growth should allow the country to grow out of this debt,? it added.
According to Moody’s, although India’s inflation numbers are currently high, they will slowly trend downward, especially if global commodity prices remain benign.
