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Fitch affirms India's rating at 'BBB-'; outlook stable
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SME Times News Bureau | 16 Nov, 2018
Credit rating agency Fitch on Thursday affirmed India's 'Long-Term
Foreign-Currency Issuer Default Rating' (IDR) at 'BBB-' with a stable
outlook.
"India's ratings balance a strong medium-term growth
outlook and favourable external balances relative to peers with weak
fiscal finances, a fragile financial sector and some lagging structural
factors," Fitch said in a statement.
"India's strong growth
outlook continues to stand out among peers. Fitch expects real GDP
growth of 7.8 per cent for the fiscal year ending 31 March 2019 (FY19),
up from 6.7 per cent in FY18, although this forecast is subject to
downside risks from tightening financial conditions, weak
financial-sector balance sheets and high international oil prices."
According
to Fitch, growth is expected to decelerate to a still-strong 7.3 per
cent in both FY20 and FY21 "for the same reasons".
"Average
projected growth for the three years through to FY21 would be the
highest among 'BBB' peers and the third-highest among all sovereigns
rated by Fitch. India's GDP growth has the potential to remain strong
for a substantial period, as continued structural reform implementation
may enhance productivity," the credit rating agency said.
As per
the statement, risks to the macroeconomic outlook are "significant, and
include a drop in credit growth, resulting from further problems in the
banking or shadow-banking sector".
"Recent defaults by a large
non-bank financial institution, Infrastructure Leasing & Financial
Services, which is partly owned by state-owned Life Insurance
Cooperation of India and some public-sector banks, highlight risks in a
sector that in recent years supplied around a third of total credit
growth," Fitch said.
"As with other emerging economies with
current-account deficits, India has been vulnerable to shifts in market
sentiment from global trade tensions and U.S. monetary tightening. A
widening current-account deficit, resulting from a higher oil import
bill and accelerating economic activity, appears to have aggravated the
market sell-off in India."
The credit rating agency added that
depreciation of the rupee, by 11 per cent against the US dollar since
the beginning of 2018 has been the steepest among major currencies in
Asia, despite intervention that resulted in a $33 billion loss in
foreign-exchange reserves between April and October.
"The
currency could remain under pressure as the positive differential
between the U.S. and Indian policy rates continues to narrow. The large
portfolio inflows that India enjoyed in the previous few years are
unlikely to return in the current external environment," the statement
added.
"Fitch expects India's reserve buffers to cover 6.4 months
of current external payments at the end of FY19, down from 7.9 months
in FY18, but still stronger than the 'BBB' median of 4.9 months. India
is also more resilient to external shocks than many peers given the
comparatively closed nature of the economy."
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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