Modi-impact: Moody’s downgrades India’s rating to negative

Moody's cuts India's outlook to'negative over concerns of slowing economic growth

Worldwide ratings agency Moody's has changed its outlook on India from stable to negative, citing increasing risks that economic growth of Asia's third-largest economy will remain "materially lower than in the past".

The rise in prices appears to be a reaction to downgrade in Moody's credit ratings for India to negative from stable because unlike domestic rates, worldwide gold prices fell on a rally in the stock markets seen on Thursday.

"Government of India has noted that the Moody's Investors Service has today changed the outlook on the Government of India's ratings to negative from stable while keeping the foreign-currency and local-currency long-term issuer ratings unchanged at Baa2", the government said in a statement. "India continues to offer strong prospects of growth in the near and medium-term", the Finance Ministry statement added.

The US-based ratings agency cited increasing risks to growth in Asia's third-largest economy, in the face of the government's and policy ineffectiveness in addressing economic weakness, as the main factor for the downward revision. "India's relative standing remains unaffected".

India's economy grew only 5 percent year-on-year (YoY) between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.

The government has undertaken series of financial sector and other reforms to strengthen the economy as a whole, the ministry added. It said that India's ongoing economic slowdown may become "entrenched" and "long-lasting", despite government measures.

The government on Friday said the fundamentals of the economy remain quite robust with inflation under check and bond yields low.

The agency, however, has retained India's credit rating at Baa2. "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 prospect of more reforms that would back business investment and growth at higher levels and broaden the narrow tax base had diminished, the agency added. "Moody's does not expect the credit crunch among NBFIs [non-bank financial institutions], major providers of retail loans in recent years, to be resolved quickly".

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