HomeEconomy NewsVery difficult to reverse some trends over longer term, says William Foster of Moody's

Very difficult to reverse some trends over longer term, says William Foster of Moody's

Moody's Investors Service on Tuesday said that it will be "very difficult" to reverse some of the current trends over the longer term, after it downgraded India's foreign-currency and local-currency long-term issuer ratings to Baa3 from Baa2.

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By CNBC-TV18 June 2, 2020, 10:53:36 AM IST (Updated)

Very difficult to reverse some trends over longer term, says William Foster of Moody's
Moody's Investors Service on Tuesday said that it will be "very difficult" to reverse some of the current trends over the longer term, after it downgraded India's foreign-currency and local-currency long-term issuer ratings to Baa3 from Baa2.


It also downgraded India's local-currency senior unsecured rating to Baa3 from Baa2 and its short-term local-currency rating to P-3 from P-2. The outlook remains negative, Moody's said in its release on Monday.

"While today's action is taken in the context of the coronavirus pandemic, it was not driven by the impact of the pandemic. Rather, the pandemic amplifies vulnerabilities in India's credit profile that were present and building prior to the shock, and which motivated the assignment of a negative outlook last year," the rating agency said.

Talking to CNBC-TV18, William Foster, vice president, sovereign risk group, Moody's Investors Service, said that the negative outlook is based on slowing growth and weak fiscal position. The stress in financial system also is a concern, he said, adding that he didn't see measures to improve these issues over a medium term.

“In the end, all of these issues are exacerbating the quality of the credit profile and we don’t see at this stage measures being taken have alternatively improved those clearly over the medium-term. There is a risk that they will continue to put pressure,” Foster said.

Foster further added that India’s credit rating outlook was changed to 'negative' at the end of last year, but a decision was taken now based on the trends.

“India’s vulnerabilities have been building prior to the coronavirus pandemic. That is something we signaled very clearly with the negative outlook at the end of last year particularly with regards to slowdown in growth, the fiscal position that had not been improving and then the building pressures in the financial system, those have all been exacerbated by the pandemic," he said.

Reacting to Moody's downgrade, A Prasanna, chief economist, ICICI-Securities, said that India has lost its way in terms of growth.

“India has lost its way in terms of... we don’t know what is the growth model, we have a huge problem in the financial sector, we have postponed addressing it for so many years. So these are bigger issues, which have been building up for a long time. So I don’t think overnight a solution can be found,” Prasanna mentioned.

Nirmal Jain, Chairman, IIFL Group said, "I can’t understand the rationale. Covid is a global problem and relatively India has been conservative fiscally. Unless they are downgrading the whole world? They have also downgraded many good companies in India as well."
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