Moody's upgrades outlook for rupee

Recognising Indian economy’s resilience to global financial crisis, rating agency Moody’s today upgraded its outlook on Indian government’s local currency rating (Ba2) to positive from stable.

It also raised the ceiling on banks' foreign currency deposits has been raised to Ba1 from Ba2 to better reflect the robust external position of India.

The change in the outlook on the local currency government bond rating was prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact, Moody’s Investor Services said in statement today.

"The structure of India's economy is robust, and cyclical trends are  strong and sustainable," said Aninda Mitra, Moody's sovereign analyst for India.

Moody's latest action, however, does not affect the outlook on the government's foreign currency bond ratings, which remains stable at Baa3.  Such decision therefore paves the way for a possible narrowing of the gap between the local currency and the foreign currency bond ratings of the Government of India.

Moody's said that the exceptional strength of India's external position was such that holding a foreign currency government debt instrument was less risky than holding a local currency government debt instrument.

"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 added.