The report said the growth outlook in the US, European Union and China, interest rate outlook after the quantitative easing tapers off, and the trend in commodity prices along with domestic factors like farm output, domestic interest rates and impending elections will affect sovereign credit profile in the current fiscal. However, on the positive note, the rating agency said that low government foreign currency debt insulates debt repayment capacity from exchange rate volatility.
Moody's also said the current reserves can finance current account and external debt repayment needs of the country. Moody's is the only international rating agency with a stable outlook on the country at Baa3, which is the lowest investment grade rating. The economy grew at its slowest pace in the last four years logging in a poor 4.4 per cent in the first quarter of the current financial year.
Following the poor GDP reading in Q1, many external brokerages like Nomura, Citi and Standard Chartered slashed FY14 growth forecast to as low as 4 per cent. Domestic currency too is witnessing a downward trend, hovering at around 67 to the dollar.