NEW DELHI:The rupee strengthened 64 paise to 64.68 against dollar in early trade on Friday after global rating agency Moody's Investors Service upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook to stable from positive.
In a significant boost to the Modi government's reform agenda, which has faced flak in recent weeks following a growth slowdown, Moody's Investors Service cited these very measures to upgrade India's sovereign rating a notch and changed the outlook to positive from stable.
In 2015, the rating outlook was changed to "positive" from "stable".
The "Baa3" rating was the lowest investment grade - just a notch above "junk" status.
It, however, said the high public debt burden remains an important constraint on India's credit profile relative to its peers, notwithstanding the mitigating factors which support fiscal sustainability.More news: 'Lord of the Rings' TV Series Heading to Amazon
The agency said the reforms initiated by the Indian government could improve the business climate, productivity, stimulating foreign and domestic investment, and hence fostering strong and sustainable growth.
"We don't think the other two global rating agencies - Fitch and S&P - will follow-up in a hurry, based on their cautious rhetoric", she said, noting their concerns on "weak" state and central government finances. Moody's had last upgraded India's rating to "Baa3" in the year 2004. "Many traders have burnt their fingers already and they are not ready to keep buying", said a dealer with a private bank.
Talking about policy decisions like demonetisation and GST implementation, he said that a series of steps taken by the government are taking Indian economy to a greater formalisation and digitization which is being universally acknowledged.
The upgrade is a recognition of the reform process in India, particularly in the last 3-4 years, in which structural reforms placed India on a high growth trajectory, he said.
Moody's move has also been cheered by market participants. The rating agency also assigned a stable outlook to SBI's DIFC branch.