The Indian economy is well-prepared, even if not completely immune, for any external risk in case the US Federal Reserve normalises rates in December, says a DBS report.
According to the global financial services major, expectations that the US Fed might normalise rates in December have been rising and the resultant risks of a stronger dollar accompanied by a rise in rates are under watch.
“While this is a source of concern for most emerging markets, we reckon that the Indian economy is well-prepared even if not completely immune to any resultant volatility,” the report said.
According to DBS, India’s most external vulnerability indicators have shown improvement.
The current account balance is likely to ease below 1 per cent of GDP this year, while the balance of payments is in surplus due to portfolio inflows, along with a stronger pick-up in foreign direct investments, improving the overall funding mix.
Moreover, easing domestic borrowing costs have lowered the appetite for external commercial borrowings, with the April-July 2016’s lending down 50 per cent year-on-year.
On non-resident deposits, the report said that the upcoming FCNR maturities are likely to further lower the debt burden.
“These metrics combined with a smaller current account deficit and on-track fiscal consolidation, lower the economy’s vulnerability to external risk,” DBS said.