New York based S&P cut Spain’s sovereign credit rating to BBB+ from A, with a negative outlook. Spain’s short-term rating was reduced to A-2 from A-1. S&P expects the government finances will deteriorate even more than previously thought as a result of a contracting economy and an ailing banking sector. The ratings agency cited concerns that Spain may have to arrange for further fiscal support to its banks as the economy contracts further. S&P had first cut ratings for Spain this year along with France and other European nations on Jan. 13.
Moody’s Investors Service rates Spain at A3 with a negative outlook, and Fitch Ratings at A, also with a negative outlook. Spain’s borrowing costs have climbed about 70 basis points this year & bad loans reach the highest levels in almost two decades. S&P called on euro zone countries to manage better the sovereign debt crisis and said the Spanish economic outlook could deteriorate further unless strong measures were adopted at European level. The ratings agency also warned further downgrades could occur if it sees a rise in the net general government debt to more than 80% of GDP in the 2012-2014 period or political support for the reform agenda wanes.
India Economic Update:
A day after global credit rating agency S&P cut India’s outlook to negative and warned of a downgrade if there is no improvement in the fiscal situation and political climate, RBI said the country’s financial system is strong and these ratings are many times discounted by markets. RBI may intervene in the forex market only if there is high volatility in the currency market, not just because of the ratings.
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