Economy

India's outlook cut to 'negative' as Moody's warns of growth risks

India's outlook cut to 'negative' as Moody's warns of growth risks”

The USD/INR pair witnessed a 30-pips bullish opening gap on Friday and went to refresh three-week highs at 71.30 at the open after the Indian Rupee was heavily hit by Moody's Investor Service downgrade of India's outlook to "Negative" from "Stable".

Moody's said India's outlook partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden from already high levels.

However, the Baa2 rating balances the country's credit strengths including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges including high government debt, weak social and physical infrastructure and a fragile financial sector.

This cut in ratings comes nearly after two years when it had upgraded India's sovereign ratings.

The agency, however, has retained India's credit rating at Baa2. "Government of India has also proactively taken policy decisions in response to the global slowdown", the ministry said.

India's finance ministry reacted to the statement by saying that the country "continues to be among the fastest growing major economies in the world".

The government added that the fundamentals of the economy remained robust, with inflation under check and bond yields low and that India continued to offer strong prospects of growth in the near and medium term. "The central bank off late has been on a buying spree in spot but it would not want the rupee to move out of whack such that the volatility leads to concerns over capital inflows", forex advisory firm IFA Global said in a note.

The downgrade to the outlook puts additional pressure on authorities to kickstart the economy, although they have limited room to move.

With her maiden Budget for 2019-20 seemingly failing to address the widening problems in the economy, she took to announcing measures aimed at reversing the slowdown within a month of Parliament approving her Budget.

The benchmark S&P BSE Sensex stock index dropped 0.2 per cent at 9:25am in Mumbai, while the rupee fell 0.4 per cent to 71.25 per USA dollar at open after the outlook cut. "There's a reasonable probability that that could happen, and this is a negative outlook so it gives them some time to play this out".

The ministry said: "As India's potential growth rate remains unchanged, assessment by International Monetary Fund and other multilateral organizations continue to underline a positive outlook on India".



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