Moody's lowers India's outlook to 'negative' from 'stable', Govt rebuts

Moody's lowers India's outlook to'negative from'stable over economic slowdown

In a blow to India, Moody's Investors Service has cut country's credit rating outlook to negative - the first step towards a downgrade, saying the government has been partly ineffective in addressing economic weakness, leading to rising risks that growth will remain lower.

Moody's retained India's foreign currency rating at Baa2, the second-lowest investment grade score, but said it could downgrade the nation if fiscal metrics deteriorated materially.

Moody's change in outlook for India made bullion traders flock to the safe-haven metal, pushing gold prices in India higher on Friday.

The report also noted that if nominal GDP growth does not return to high rates, it expects that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden. "As India's potential growth rate remains unchanged, assessment by International Monetary Fund and other multilateral organizations continue to underline a positive outlook on India".


The worldwide ratings agency said it estimates that the country's growth slowdown is in part long-lasting while backing its other ratings for India.

However, the Baa2 rating balances the country's credit strengths including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges including high government debt, weak social and physical infrastructure and a fragile financial sector.

"India continues to be among the fastest-growing major economies in the world, India's relative standing remains unaffected", the finance ministry said in a response to the outlook cut, adding that the economy's fundamentals remained "quite robust". It said that India's ongoing economic slowdown may become "entrenched" and "long-lasting", despite government measures. "The central bank off late has been on a buying spree in spot but it would not want the rupee to move out of whack such that the volatility leads to concerns over capital inflows", forex advisory firm IFA Global said in a note.

"The drivers of the economic deceleration are multiple and mainly domestic", the agency said. "With public sector banks still dealing with the legacy of non-performing loans accumulated at the beginning of the decade, credit supply is likely to remain impaired for some time, compounding the income shocks".

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