Moody’s warns rupee weakness may hit India’s credit profile

Moody’s currently has a “stable” outlook on India’s ratings, in line with Fitch Ratings. Standard and Poor’s maintains a “negative” outlook. Photo: AFP

Reuters:Live MInt: 21 June 2013

Rupee decline is a reflection of India’s macroeconomic challenges, says Moody’s

Mumbai: The rupee’s weakness reflects domestic economic challenges, primarily a high current account deficit and lower capital flows, but does not significantly impact India’s foreign debt repayment capacity, Moody’s told Reuters on Friday.

“Given the very low level of foreign currency debt owed by the Indian government, rupee depreciation does not significantly affect sovereign debt repayment capacity,” said Atsi Sheth, vice-president of the sovereign risk group at Moody’s Investors Service, in an e-mailed response.

“However, it is a reflection of macroeconomic challenges, which do affect the country’s credit profile.”

Sheth said Moody’s current rating of “Baa3” for India—the lowest investment-grade level—incorporates macroeconomic imbalances and recent trends in the current account, capital flows, and the exchange rate.

The Indian currency had slumped to a record low of Rs.59.9850 to the dollar on Thursday, as the country’s record high current account deficit is exacerbating its vulnerability in an emerging market rout.

Moody’s currently has a “stable” outlook on India’s ratings, in line with Fitch Ratings. Standard and Poor’s maintains a “negative” outlook.