The Telegraph
Since 1st March, 1999
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Moody’s weighs India upgrade
- Bulging foreign exchange muscle prompts rating agency rethink

Mumbai, Nov. 14: Encouraged by the swelling forex kitty, leading global credit rating agency Moody’s Investors Service today announced it has placed the credit ratings of India on review for a possible upgrade.

“The review has primarily been based on substantial strengthening of the country’s external financial situation,” Moody’s said in a cryptic statement.

“Today’s move will cheer companies that intend to raise foreign debt. It will also inject a general feel-good factor into the financial markets,” a dealer with a foreign bank said.

However, cynics say a possible rating boost will not have much of an impact at a time when interest rates at home are at a record low.

Moody’s said the foreign currency issuer rating for India—the proxy for the rating that would could be assigned if the government issues a foreign currency-denominated bond in the international capital markets— has also been placed on review for a possible upgrade.

It might enable the government to tap funds abroad, where interest rates are plumbing new troughs. At present though, the government has no outstanding bonds, nor has it guaranteed eurobonds, Moody’s said.

But the BA2 domestic currency bond rating of the government is not on review and the outlook on that remains negative, largely sue to the strain on domestic finances and last year’s across-the-board reduction in import tariffs.

Nevertheless, India had a strong external position, the agency said.

“The current account has moved into a small surplus, thanks to good performance of both merchandise and service exports and surprisingly stable inflows of worker remittances from Indian workers living abroad”.

“In addition, the central bank’s foreign exchange assets have climbed rapidly, reaching $ 61 billion in recent weeks, external debt and debt service ratios have declined to manageable levels, and short-term debt is negligible.”

Moody’s said that ongoing analysis of India is focused on whether the fiscal problems before the government could spill over into a balance of payments crisis, a linkage that would limit the differential between the foreign and domestic currency ratings.

Earlier, during one of his visits to India, Moody’s chief John Rutherfurd had hinted that he was not optimistic about the country pushing ahead with tough fiscal reforms.

“This is probably a difficult time to expect very aggressive moves of the sort we have always indicated and eventually want to see,” Rutherfurd, president and chief executive officer of Moody’s Corporation had then said.

Rutherfurd had then expressed concern over the country’s mounting deficit level, which placed a heavy burden on its fiscal and monetary policy.

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