29.5.12

Moody's on Rupee's pluge

Rating agency Moody’s has said that the sharp depreciation of the rupee will help in correcting some of the macroeconomic imbalances and will not impact India’s rating. The observation comes at a time when there is widespread concern over the inability of the government and the central bank to support the rupee. 
“Last Tuesday, the rupee dipped to a record low of 56 against the dollar. Some media reports characterized this as a negative credit development for India (Baa3 stable), but it is not,” the rating agency said in a report on credit outlook. “Since the Indian government’s political capacity to implement fiscal and structural reform is 
weak, depreciation is a market response that will help correct macroeconomic imbalances,” said Moody’s. However, it warned that current global growth and capital market environment will limit any credit positive implications of this correction. 
The report comes on a day when the domestic currency firmed up to close at 55.19, up from Friday’s close of 55.38 after touching an intra-day high of 55.05 against the dollar. Dealers said that the rupee firmed up with other Asian currencies after news from Europe that a Greek default might not take place soon. 
According to Moody’s, the 
depreciation will not hit government rating because foreign currency debt comprises only 7% of its total debt and 5% of gross domestic product. “Most of it is owed to multilateral and bilateral creditors and has a maturity profile that keeps annual foreign currency repayments relatively low. Therefore, the direct effect of depreciation on the government’s own debt repayment capacity is limited,” Moody’s said. 

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