Page 121 - ES 2020-21_Volume-1-2 [28-01-21]

104 Economic Survey 2020-21 Volume 1

around one per cent over the previous day, and recovered to grow at 0.38 per cent over the next
two weeks. Figure 33 (ii) shows that during the rating downgrade, exchange rate (INR/USD),
on average, appreciated by around 0.01 per cent over the previous day, and appreciated by 0.01
per cent over the next two weeks.

Figure 33: Short-Term Average Change in Select Indicators during
and after India’s Sovereign Credit Ratings Downgrade (1998-2018)

(i) Sensex Return

Note: 0 signifies day of change in credit ratings
Source: BSE and Survey calculations

(ii) Exchange Rate (INR/USD)

Note: 0 signifies day of change in credit ratings
Source: RBI and Survey calculations

Medium-Term Effect of India’s Sovereign Credit Rating Downgrades

3.37 Figure 34 shows the correlations between a credit ratings downgrade and Sensex return,
exchange rate (INR/USD) and G-Sec yields (5 year and 10 year) and spread in the medium
term, averaged across downgrade episodes from 1998-2018. It may be seen in Figure 34 (i),
that during ratings downgrade, Sensex return, on average, fell by around four per cent over