Moody’s downgrades India rating to a notch above ‘Junk’

Moody's Investors Service on Monday downgraded India’s sovereign rating to Baa3, the lowest investment grade, which is just a notch above ‘Junk’, with a negative outlook.

“The decision to downgrade India's ratings reflects Moody's view that the country's policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector, Moody’s said in a statement.

The negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody's currently projects.

Moody's also lowered India's long-term foreign-currency bond and bank deposit ceilings to Baa2 and Baa3, from Baa1 and Baa2, respectively.

“India faces a prolonged period of slower growth relative to the country's potential, rising debt, further weakening of debt affordability and persistent stress in parts of the financial system, all of which the country's policymaking institutions will be challenged to mitigate and contain,” the rating agency said as the country fights coronavirus.

Moody's had upgraded India's ratings to Baa2 in November 2017.