Finance Minister Pranab Mukherjee on Saturday described the downgrading of the United States government by credit rating agency as a “grave situation” and said it has to be analysed.
“We will have to analyse it. It will require some time.
Situation is grave and there is no gain in making off-the-cuff remarks,” he told reporters on the sidelines of a function here.
In an unprecedented move, Standard & Poor’s downgraded the US government’s ‘AAA’ sovereign credit rating — a development which raises concerns that investors will lose confidence in its economy.
This comes a day after the turmoil witnessed in the global markets including those in Asia. In India, the BSE Sensex plunged more than 700 points before recovering partially with investors selling across the board.
Seeking to allay domestic fears, Mr. Mukherjee had on Friday said that the market fall was due to external factors.
“This is nothing domestic. It is substantially due to external factors. Stock markets fell due to global factors like weak recovery in US and spread of debt burden in Euro-zone. Current volatility is temporary,” he had said.
Market regulator Sebi said it was watching the situation closely. ”... And our belief is that everything is perfect and right in our market. There is nothing for the people to worry,” said Sebi Chairman U.K. Sinha.
“Our risk management system is working perfectly. All the settlements are taking place,” he added.
The Reserve Bank, however, had said that India will have to learn to live with volatility in the global economy.
The U.S.’s downgrade, the S&P said, reflects its opinion that the fiscal consolidation plan which Congress and the administration recently agreed to “falls short of what, in our view, would be necessary to stabilize the government’s medium—term debt dynamics.”
Other prominent credit rating agencies — Moody’s Investors Service and Fitch Ratings — affirmed their AAA credit ratings even as President Barack Obama signed a bill that ended the debt—ceiling impasse that pushed the Treasury to the edge of default.
Moody’s and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weak.