Rating status quo might not stir rupee, bond market

Standard & Poor’s rating reiteration for India is unlikely to stir up the rupee and bond market as not many were expecting a rating revision by the international rater. 

The global ratings agency maintained its BBB- ratings with a stable outlook for India. The 10-year bond yields closed at seven per cent, from its previous close of 6.99 per cent, while the rupee closed at 64.70 a dollar against its Thursday’s close of 64.57. S&P reiterated its ratings after the markets closed. 

Moody’s upgraded India’s rating to Baa2 from Baa3 on November 16. The markets are expecting that Fitch and S&P would also upgrade the ratings of the country but it would take time. 

The bond market would continue to be driven by local factors such as fiscal deficit numbers and inflation print, rather than a ratings revision, said Harihar Krishnamurthy, head of treasury at First Rand Bank. The bond market also expects the central bank to maintain status quo in its monetary policy on December 6. The rupee would continue to be driven by cues from the US markets, said Samir Lodha, managing director of QuantArt, a risk management firm. 

“The recent Federal Reserve minutes showed the central bank is not hawkish on inflation. That means there won’t be undue rate hikes and that is driving exchange rates globally. Also for the rupee, the coming elections are more important than a ratings revision,” Lodha added.

The Indian currency has been one of the best performing ones in the region and was strengthening even before Moody’s upgrade but dealers said it can depreciate by March as at the present level, the local currency is significantly overvalued and hurts India’s export competitiveness.