Rating Agencies

Rating Agencies

Subject – Economy

Context – Rating agency Moody’s changed India’s sovereign rating “outlook” from “negative” to “stable”.

Concept –

• Rating agency Moody’s changed India’s sovereign rating “outlook” from “negative” to “stable”.
  • Moody’s hasn’t changed India’s ratings as a bond issuer; that continues to be the lowest investment grade (Baa3).
  • But the “outlook” has improved.
• Of the three big rating agencies — Standard & Poor’s, Moody’s and Fitch, all of which place India in the lowest investment grade — only Fitch still retains a negative outlook.
• These ratings inform global investors how safe would it be for them to lend money to the Indian government — and, by extension, to the Indian businesses.
  • A low rating, as India has, implies investors would ask for greater rewards (or charge higher interest rates) to compensate for the higher risk of lending to the Indian government or an Indian firm.
• The “outlook”, on the other hand, essentially refers to the chances of a country’s rating getting worse or better.
  • A negative outlook last year meant that India’s rating was expected to worsen further.
  • A “stable” outlook, thus, is an improvement and suggests that the Indian government’s finances are improving. This improvement is also seen to reflect the improving condition of the underlying economy.
• However, for its part, Fitch Ratings cut India’s economic growth forecast to 8.7 per cent for the current fiscal while maintaining the negative outlook on India’s bond issuance.
  • There was some good news from Fitch as well as it raised India’s GDP growth projection for FY23, that is, next financial year, to 10 per cent.

To know about Moody’s ‘stable’ rating to India, please click here.

World Economic Outlook – by IMF

• The IMF releases this report twice every year — in April and October — as well as regular “updates” on these outlooks.