Rating Agency Moody's upgraded Credit Rating of Indian Government's Bonds to Investment Grade

Credit rating agency Moody's on 21 December 2011 upgraded the credit rating of the Indian government's bonds from the speculative to investment grade.  According to a release issued by the Finance Ministry, Moody's unified India's local and foreign currency bond ratings at Baa3. The ratings agency initially had separate rating for investors who choose to buy bonds in foreign currency and separate rating for those who have a rupee exposure. the ratings agency had a Baa3 foreign currency rating and a Ba1 local currency rating till September 2011.

Moody's Investor Service upgraded its local currency rating for Indian government bonds to Baa3 which is investment grade as compared to the earlier Ba1 which is junk or speculative grade.

India's Baa3 rating incorporates credit strengths such as a large, diversified economy, robust medium term growth prospects and a strong domestic savings pool that facilitates the financing and refinancing of the government's relatively high debt burden.

India's foreign currency bond ceiling is unchanged at Baa2, and the foreign currency bank deposit ceiling is Baa3. The local currency bond and bank deposit ceilings are unified at A1. In addition, the government's local currency short-term rating has been changed to P-3 from NP, indicating the government's ability to repay short-term debts.

Moody's expected India's growth downturn to persist for the next two quarters, but the GDP growth would be above average with respect to the similarly rated peers. Giving the rationale for the upgrade, Moody's mentioned that diverse sources of Indian growth have enhanced its resilience to global shocks. The present slowdown could reverse some time in 2012-13, as inflation cools from the current 9 per cent levels.

Moody’s upgrade is expected to  attract Foreign Institutional Investors (FIIs) to the Indian bond market and boost the gloomy economic outlook.

The last time Moody's upgraded any Indian long-term sovereign debt instrument from the speculative to investment grade was in 2004.