Chairman and CEO of Moody’s Corporation John Rutherfurd Jr caused a near panic when, in the closing session of the India Economic Summit 2002, he said Moody’s is considering a ‘decrease’ in India’s domestic currency rating. However, later, both Rutherfurd and Chester Murray (senior managing director of Moody’s Investors Service) clarified to reporters that there would be no downgrade but Moody’s would continue to maintain its ‘negative outlook’ on India’s domestic currency rating due to the high public deficit. The negative outlook already exists and there would be no change in that.Moody’s officials clarified that “the outlook on India’s domestic currency rating would continue to be negative as the public deficit was very high.” Issuing a warning on the high fiscal deficit of both centre and states, Moody’s officials also said that if the situation of public deficit does not change, the rating due for revision after 18 months may be downgraded.Moody’s warning on high deficit comes on the heels of IMF issuing a warning on the same. Earlier this month, Moody’s had indicated that the Ba2 domestic currency bond rating of the government was not on review and that the outlook on this rating remains negative, it said.Moody’s officials said that while the domestic currency rating will remain the same (this affects foreigners who wish to buy rupee-denominated bonds in India), the foreign currency rating is up for upgrade and a decision on this is expected to be taken within the 90 days time frame. The consideration for upgrade is mainly due to high foreign exchange reserves of India, officials of Moody’s stated.
