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Yashwant Sinha unfazed by S&P downgrade

Finance Minister Yashwant Sinha on Wednesday said that the reaction of domestic financial markets was a clear comment on Standard & Poor's downgrade of the country's local currency rating announced the previous day.

"The markets are stable, every thing is stable. That is the biggest commentary -- much more than I can say," Sinha said.

"Look at the market. I am just saying one thing -- that all the predictions that were made yesterday when the rating downgrade came, about the rupee collapsing, the bond market collapsing...nothing has happened."

On Tuesday, credit rating agency Standard & Poor's cut India's long-term local currency rating to BBB-minus from BBB.

It cited soaring budget deficits and domestic indebtedness for the rating cut and said India's deficit, that included both the federal and state governments, was likely to exceed 10 per cent of GDP.

The financial markets were largely unmoved after an initial negative reaction to the news as traders focused on local factors.

The benchamrk Bombay exchange index was down 0.56 per cent at 3,301.24 in afternoon trade while the rupee was quoted at 47.132/142 per dollar, off 47.18 in some morning deals.

Bond prices rebounded after comments by central bank governor Bimal Jalan were interpreted by traders as meaning that interest rates would remain soft.

"It's (interest rates) been softening over a period of time. So we still have a softening bias. The softening bias continues," Jalan said in New Delhi.

The benchmark 10-year bond, the 11.50 per cent 2011, rose to 114.12 rupees from 113.86 before Jalan's comments. This bond fell to 113.70 rupees on Tuesday on news of S&P's downgrade from 114.31 earlier.

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