New Delhi: Moody’s Investors Service has changed the outlook on the government of India’s ratings to stable from negative. It has affirmed the country’s foreign-currency and local-currency long-term issuer ratings and the local-currency senior unsecured rating at Baa3.
According to Moody’s scale of ratings, obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative characteristics.
The global financial research agency said the decision to change the outlook to “stable” reflects its view that the downside risks from negative feedback between the real economy and financial system are receding.
Moody’s has also affirmed India’s other short-term local currency rating at P-3, which points to the acceptable ability to repay short-term obligations
“The decision to change the outlook to stable reflects Moody’s view that the downside risks from negative feedback between the real economy and financial system are receding. With higher capital cushions and greater liquidity, banks and non-bank financial institutions pose much lesser risk to the sovereign than Moody’s previously anticipated,” the rating agency said in its statement.
It added that while risks stemming from a high debt burden and weak debt affordability in India remain, it is expected that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile.
According to Moody’s, the Baa3 ratings balance India’s key credit strengths, which include a large and diversified economy with high growth potential, a relatively strong external position, and a stable domestic financing base for government debt, against its principal credit challenges. These challenges include low per capita incomes, high general government debt, low debt affordability and more limited government effectiveness.
“India’s long-term local-currency (LC) bond ceiling remains unchanged at A2 and its long-term foreign-currency (FC) bond ceiling remains unchanged at A3. The four-notch gap between the LC ceiling and issuer rating reflects limited political event risk that would significantly disrupt the economy and modest external imbalances, balanced by a large government footprint in the economy and limited predictability and reliability of government policies,” the agency explained.
The one-notch gap between the LC and FC ceiling reflects limited external indebtedness and that, despite a history of several forms of capital controls, a debt moratorium remains unlikely, the statement added.
(With outputs from agencies)
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