No hitch in rating India stable, says Fitch

Finally, finally, some good news on the macroeconomic front that should support the rupee and the stock markets.

Fitch Ratings, among the top three raters in the world (Standard & Poor’s and Moody’s Investor Services being the other two), on Wednesday surprisingly raised India’s credit rating outlook from ‘negative’ to ‘stable’ and affirmed the long-term foreign and local currency ratings at ‘BBB-’ and short-term foreign currency IDR at ‘F3.’

A credit rating shows the ability of a borrower to repay loans. So the higher the rating, the lower the cost of borrowing -- for both countries and companies.

The key factors that supported Fitch’s move were the measures taken by the government to contain fiscal deficit and efforts to spruce up infrastructure investment.

“The authorities were successful in containing the upward pressure on the central government budget deficit in the face of a weaker-than-expected economy,” Fitch said, adding it expects the government to replicate the success in the current financial year too.

Rohini Malkani, economist with Citigroup, said Fitch seems satisfied with government’s efforts since September 2012 and steps taken by the cabinet committee on investments. “A better outlook would support rupee that has been under pressure lately.”

Anubhuti Sahay and Priyanka Kishore, economists with Standard Chartered Bank, said: “This positive development should bring some relief to foreign debt investors, who have withdrawn $3.27 billion from Indian debt since May 22.”

The rater had placed India’s credit ratings on ‘negative’ outlook in June 2012, which increased the likelihood of the country’s credit rating getting downgraded to junk status.

Fitch had upgraded India’s credit rating to ‘BBB-’ in 2006.

Last year, Standard & Poor’s and Moody’s dubbed India’s credit rating outlook ‘negative’.
Fitch is the only one to have reversed the action so far.

Standard & Poor’s is yet to be convinced by the government’s efforts and last month maintained its ‘negative’ outlook citing risks from high fiscal deficit.

Fitch, however, expects a modest growth recovery in India. It has pegged GDP growth rate at 5.7% for current financial year and 6.5% by end of March 2015. In terms of current account deficit, Fitch said that India’s overall external position is a relative rating strength and India’s forex reserves provide a cushion to absorb adverse external shocks.

Falling inflation was another factor that triggered the upward revision in outlook. However, the recent weakness of the exchange rate may complicate policy management and limit the scope for further policy rate cuts by the central bank, Fitch said.

The Reserve Bank of India is slated to announce the mid-quarter monetary policy review on June 17.