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Moody's downgrades India's ratings to Baa3: What is Baa3 Rating?

Baa3 is the lowest investment grade in the Moody's rating scale.

Jun 2, 2020 17:49 IST
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Moody's Investors Service has downgraded India's credit rating to the lowest investment grade Baa3 from Baa2 while maintaining a negative outlook. The agency reveals that the economy of India is expected to face slower growth for a prolonged period due to the financial crisis amid the COVID-19 pandemic, rising debts and weakening of debt affordability.

While downgrading India's rating, Moody's was of the view that it will be challenging for the Indian policymaking institutions to implement policies for the mitigation and containment of financial risks.

Have a look at the ratings downgraded by Moody's:

Rating

Downgraded Rating

Previous Rating

India's Local Currency Senior Unsecured Rating

Baa3

Baa2

Short-Term Local Currency Rating

Prime-3

Prime-2

Short-Term Foreign-Currency Bank Deposit Ceiling

Prime-3

Prime-2

India's Long-Term Foreign-Currency Bond

A2

A1

Bank Deposit Ceilings

A2

A1

What is Baa3 Rating?

Baa3 is the subdivision of Baa, a credit rating for long-term bonds and investments by Moody's. The Baa is divided into - Baa1, Baa2, Baa3 and Baa. A Baa represents a bond or investment of relatively low-risk. Banks are permitted to make investment in Baa rated bonds.

Baa3 is the lowest investment grade in the Moody's rating scale. If an economy is rated as Baa3, it implies that it is just one notch above the junk or non-investment grade.

Baa3 rating represents a relatively low-risk investment or bond. Investors, who look forward to make low-risk investments, exercise caution in Baa3, especially when the rating has been downgraded recently.

Key Points

In November 2017, Moody's upgraded India's ratings to Baa2, which was based on expectations that the implementation of key reforms will strengthen India's credit profile. However, since then the implementation of reforms has been relatively weak and did not result into improvement in material credit.

India's GDP was estimated at 4.2 percent in the year 2019-20, which is the slowest rate since 2009. Moody's forecasts that India's GDP will contract to 4% in the current fiscal 2020-21. Even the RBI Governor  Shaktikanta Das has accepted that the Indian economy will contract in 2020-21.

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