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Sovereign rating outlook may turn negative: Moody’s

NEW DELHI: Close on the heels of the downgrading by Fitch, global rating agency Moody’s on Monday cautioned India that its sovereign ratings outlook may turn from the current ‘stable’ to ‘negative’, if the Government’s fiscal policy failed to contain the external shocks such as high crude oil prices or further aggravated inflationary concerns.

In its report on assessment of the Indian economy, Moody’s said: “If the fiscal policy response remained inadequate amidst heightened external shocks or resulted in an intensification of domestic inflation, then ratings pressure for a change in India’s sovereign ratings outlook — from ‘stable’ to ‘negative’ — would increase.”

Coming within a week of the Reserve Bank of India raising the short-term lending (Repo) rate along with a hike in the mandatory CRR , owing to which commercial banks are in the process of marking up their lending and deposit rates, Moody’s noted that there was possibility of a further rise in the cost of borrowings. The report authored by Moody’s Sovereign Risk Unit Senior Analyst Aninda Mitra warned that “higher oil prices and lack of fiscal policy reactions amidst high pent-up price pressures are putting the burden of macroeconomic adjustment on the monetary authorities”.

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