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Tuesday, Moody's Investors Service raised the outlook on the Indian government's Ba2 local currency rating to positive from stable, citing the nation's resilience to the global crisis. Also, the ceiling on banks' foreign currency deposits was revised to Ba1 from Ba2 to reflect the robust external position of India.
According to Aninda Mitra, Moody's sovereign analyst for India, the structure of India's economy is robust, and cyclical trends are strong and sustainable. "Fiscal credibility remains a relative credit drawback, but this shortcoming and its attendant risks are being contained by the economy's high growth and resilience, large domestic savings, favorable debt structure, domestic monetary confidence, and strong external position," said Mitra.
The latest rating action did not affect its outlook on the government's foreign currency bond ratings, which remain stable at Baa3. Moody's last rating action on India was in January 2004, when it had upgraded the foreign currency ratings to Baa3 from Ba1.
The rating agency assessed that holding a foreign currency government debt instrument was less risky than holding a local currency government debt instrument. "We are reconsidering now whether a two-notch rating gap is appropriate," Moody's added. Relative stability in the government's debt trajectory along with the high level of debt finance-ability indicates that narrowing of the gap should come from an upgrade of the local currency bond rating.
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