Moody’s current local currency rating for the country is Ba2, two notches below investment grade. By comparison, Standard & Poor’s and Fitch rate India at lowest rung of investment grade.
Moody’s also raised the ceiling on Indian banks’ foreign currency deposits to Ba1 from Ba2 to better reflect the robust external position of the country.
Stance on bonds stays
It said the latest rating action did not affect its outlook on government’s foreign currency bond ratings, which remain stable at Baa3. Moody’s last rating action was in January 2004, when it had upgraded the foreign currency bond ratings.
Moody’s said the exceptional strength of India’s external position was such that holding a foreign currency government bond was less risky than a local one. “We are reconsidering now whether a two-notch rating gap is appropriate, in the context of our recent practice of eliminating most rating gaps and having a single measure of government creditworthiness,” it said.
A challenging global economic environment, relative stability in the government’s borrowing plans and high levels of ability to tap funding via debt showed that narrowing this gap would happen from an upgrade in the local currency bond rating, Moody’s said.
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