Rupee fall to constrain Indias sovereign rating: Moodys

Foreign currency-denominated debt is only about 6 per cent of the total government debt,so depreciation will not materially increase the sovereign debt repayment burden. However,depreciation will exacerbate inflationary and fiscal pressures,both factors that constrain the countrys present Baa3 rating, Moodys said in a note. Baa3 is its lowest investment grade rating.

Moodys said the rupee depreciation and its likely impact on inflation and financial stability may thus keep domestic borrowing costs high,and extend the current slowdown.

The steep fall will raise the cost of servicing foreign currency government debt though it cannot have any major material impact on debt repayment burden,it added.

Maintaining that the rupee fell 9.3 per cent between May 15 and July 15,Moodys said the currency fall could increase the debt repayment and input costs for some firms,adding to the current economic stress.

Indias recent measures to prop up the rupee may limit exchange rate volatility to some degree but a sustained reversal in the rupee would require a significant narrowing of the trade deficit or large capital flows, Moodys said.