India's weakening rupee is a result of the nation's wide fiscal deficit and moderating foreign investment inflows that are constraining the scope for a credit-rating upgrade, Moody's Investors Service said.
"We see the depreciation as a reflection of the macroeconomic imbalances like the high fiscal deficit and an environment that doesn't bring in much foreign direct investment," Atsi Sheth, lead India analyst for sovereign ratings, said in a telephone interview from New York yesterday. Moody's doesn't see an improvement in either "at this point and that is why the outlook is stable with a positive outlook."
Moody's has kept India's outlook at stable, contrasting with cuts to negative by Standard & Poor's and Fitch Ratings. Prime Minister Manmohan Singh's government is reviewing caps on foreign investment to attract funds to revive a struggling economy and finance a record current-account deficit that has weighed on the nation's currency.
The rupee rose 0.1 per cent against the dollar to 56.775 as of 10:27 am local time after falling yesterday to 57 for the first time in almost a year. The yield on the 8.15 per cent government note due June 2022 was little changed at 7.41 per cent, while the S&P BSE Sensex index slid 0.1 per cent.
The rupee will be a bit volatile, while "growth will probably slowly recover and there will be some risks in terms of the current-account deficit and the currency," Sheth said. "Both balance out in a way that the Baa3 rating seems the appropriate rating at this point."
