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Re fall has minor impact on India's rating, says Moody's

Currency gains for third session in a row to close at 55.19

BS Reporter  |  Mumbai 

The sharp fall in the value of the rupee against the — the domestic crossed Rs 56 last week — had insignificant impact on India’s sovereign rating, Moody’s said on Monday.

It was not a credit negative development for India, said the rating agency.

The international ratings agency said that the direct effect of depreciation on the government’s own debt repayment capacity was limited as most of the debt was owed to multilateral and bilateral creditors. Of the total government’s debt, only seven per cent was in foreign At present, India’s rating is stable. On Monday, the rupee closed at 55.19 against the with a gain of 18 paise, or 0.3 per cent, over last week’s close.

The rupee hit a two and a half month high of 55.01 in intra-day trade on Monday. This was the third consecutive appreciation for the Indian that had hit a record low of 56.38 on Thursday.

Dealers said intervention in early trade and better global risk appetite helped rupee gain on Monday. However, month-end buying by oil companies limited the rise. Also, the US markets will remain closed due to a public holiday on Monday.

In a statement issued on Monday, Moody’s said that several emerging market currencies have lost value owing to slack demand for their exports and global capital volatility.

The ratings agency said the rupee’s fall is a result of India’s credit weakness such as loose fiscal policy, which has boosted domestic demand, inflation and import spending, government subsidies and domestic regulatory uncertainties.

Moody’s said the depreciation is a credit negative development for Indian firms without export revenues and with foreign obligations. The credit effect on the sovereign of these individual firms’ credit troubles will be muted.

“A reversal in rupee depreciation requires that international investors return to Indian markets, whether prompted by abating global concerns or an improved domestic policy and growth outlook,” said Moody’s in the statement.

According to Bombay Stock Exchange, there were foreign fund inflows of Rs 108 crore in the equity markets. The Sensex on Monday ended 1.23 per cent up from the previous close.

First Published: Tue, May 29 2012. 00:07 IST