Moody's ups outlook on India's local currency rating

Moody's Investors Service changed the outlook on the Indian government's Ba2 local currency rating to positive from stable. At the same time, the ceiling on banks' foreign currency deposits has been raised to Ba1 from Ba2 to better reflect the robust external position of India. The change in the outlook on the local currency government bond rating was prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact. Moody's latest action, however, does not affect the outlook on the government's foreign currency bond ratings, which remains stable at Baa3. Such decision therefore paves the way for a possible narrowing of the gap between the local currency and the foreign currency bond ratings of the government of India. The outcome of the next phase of India's fiscal responsibility act, and the precise nature and extent of the government's fiscal consolidation program will be critical in determining the near-term course of changes in sovereign ratings. A convincing approach whereby the benefits of economic growth better translate into lower debt metrics will be key to our judgment. Moody's last rating action on India was taken on 22 January 2004, at which time it upgraded the foreign currency ratings to Baa3 from Ba1.