Signs of recovery in the economy, Moody’s downgrades India’s outlook from ‘negative’ to ‘stable’ category

New Delhi: Rating agency Moody’s on Tuesday retained India’s credibility and downgraded the country’s outlook from negative to stable. To improve the outlook, it cited a reduction in the risk of a downturn in the economy and the financial system. Moody’s has given India a ‘BAAA3’ rating. It has a low investment level rating and is just one notch above the junk status.

Moody’s Investor Services said in a statement, “We have changed the outlook on the credibility of the Government of India from negative to stable. At the same time, the country’s foreign exchange and local currency long-term issuer rating and local currency rating (Senior Unsecured) have been maintained at Baa3.

Because of this Moody’s changed
According to Moody’s, the reason for the decision to change the outlook from negative to stable is to reduce the risk of further downside from negative feedback between the real economy and the financial system. The rating agency said, “With improved capital and liquidity conditions, risks at the level of banks and non-banking financial institutions have been reduced as compared to earlier estimates.”

The agency said, “The risk remains due to the high debt burden and weak debt servicing position. But Moody’s expects that the economic environment will be helpful in gradually reducing the fiscal deficit of the central and state governments over the next few years. This will prevent further deterioration in the credibility of the government.

It is noteworthy that Moody’s Investors Service had downgraded India’s creditworthiness from ‘Baa2’ to ‘Baa3’ last year. It had said that there will be challenges at the level of implementation of policies to mitigate the risk of continued low growth and deteriorating fiscal situation.” Moody’s had kept the outlook on the rating negative.

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