Fitch on Thursday said there is no trigger for rating action, but India’s economy is likely to continue facing pressure on account of rupee depreciation. “These pressures have exceeded those of other emerging Asian economies, but Fitch Ratings does not view these developments as a trigger for rating action at this point,” the agency said.
The agency said it will maintain a ‘Stable Outlook’ on India’s sovereign rating at ‘BBB-’, mainly because of the country’s sizable forex reserves, fiscal deficit management and structural reforms.
It further said market anticipation of US Fed tapering of bond purchase appears to have prompted some shift in investor perceptions of the risks. “Moreover, the current market volatility could persist for a while in view of continuing uncertainty over the timing and magnitude of an eventual unwinding of global central banks’ quantitative easing,” it added.
Referring to rupee depreciation, Fitch said the sharp weakening of the currency “reflects large or growing current account deficit” whose funding has been complicated by a reversal of global portfolio capital. The rupee on Thursday hit a new record low of 65.56 against the dollar.
Earlier this week, Standard & Poor’s had said it will maintain negative outlook for India as currency depreciation is adversely impacting investor confidence.
Fitch further said India’s forex reserves have come under pressure, but are still sizable. It said the forex reserves, which have fallen to $279 billion, still provide around 5.5 months of import cover.
Noting that India has adjusted its economic policies, it said, “We expect fiscal policy restraint to persist, in line with last year’s result, with the budget deficit remaining within 5% of GDP.”