The rupee fall may constrain country’s sovereign credit rating, as it will “exacerbate inflationary and fiscal pressures”, even though forex currency denominated debt is only around 6 per cent of total government debt, Moody’s warned on Thursday.
It also painted a grim possibility of any major gains in the rupee during the current fiscal saying that the continuing global volatility, and domestic political uncertainty ahead of the 2014 hustings will limit chances of any significant appreciation apart from further impact growth.“Foreign currency-denominated debt is only about 6 per cent of the total Government debt, so depreciation will not materially increase the sovereign’s debt repayment burden.
“However, depreciation will exacerbate inflationary and fiscal pressures, both factors that constrain the country’s present Baa3 rating,” Moody’s said in a note on Thursday.It warned: “The rupee depreciation and its likely impact on inflation and financial stability may thus keep domestic borrowing costs high, and extend the current slowdown.”