Traders Pin Hopes on RBI Support After Moodys Cuts India Rating

Traders in India are yearning for the central bank to backstop the rupee and sovereign-bond markets after Moodys Investors Service cut the credit rating to the lowest investment grade.

India‘s long-term foreign-currency credit rating was cut to Baa3 from Baa2, Moody’s said in a late evening statement on Monday, citing policy challenges in addressing a prolonged slowdown and the deteriorating fiscal position. The outlook remains negative, it said.

The cut brings Moodys rating on India on par with S&P Global Ratings and Fitch Ratings Ltd., both of which have a BBB- rating. Any downgrade by S&P and Fitch will hurt flows to a nation that relies on imported capital to fund investment. Already, global funds have yanked $14 billion from rupee bonds this year, the highest in emerging Asia.

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An RBI spokesperson didnt immediately respond to an email seeking comment.

“The RBI will have to come out with an explicit support for the bond market after this development, otherwise its going to be very tough,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. He expects benchmark yields to climb by 15-20 basis points on Tuesday, he said.