India among five least vulnerable to strengthening dollar:Moody's
28 June 2018
Ratings agency Moody's Investor Services has ranked India among the five countries least vulnerable to currency pressures amid strengthening of the US dollar, due to its low dependence on external capital inflows.
The appreciation of the dollar has prompted a sharp currency depreciation and / or a significant decline in forex reserves in a number of emerging and frontier markets, Moody's noted in a report on the impact of strengthening of the US dollar on other sovereigns, on Thursday.
The others that are least vulnerable to currency pressures include China, Brazil, Mexico and Russia.
This is because large savings channelled through the financial sector allows these economies to largely fund themselves domestically, thereby lower their exposure to volatile portfolio flows, it said.
The Indian rupee closed at 68.63 a dollar on Wednesday, missing its record closing low of 68.825 hit on 28 August 2013 by 0.28 per cent, amidst concerns that higher crude oil prices will worsen India’s current account deficit and accelerate inflation. (See: Rupee closes near all-time low at 68.63 against dollar
Moody's said although India's CAD has widened, driven in part by the recent rise in oil prices, it remains modest as a percentage of GDP and is largely financed by equity inflows, including foreign direct investment.
India's foreign exchange reserves stand at over $400 billion.
"India's significant build-up of foreign exchange reserves in recent years to all-time highs provides a support buffer to help mitigate external vulnerability risk," it noted.
In FY 2017-18, India's CAD was $48.7 billion, or 1.9 per cent of GDP, which was higher than $14.4 billion, or 0.6 per cent in 2016-17.
Moody's also noted, "India's limited external vulnerability is supported by a large and relatively stable domestic financing base for government debt, which contributes to the economy's resilience by sheltering it from abrupt changes in external financing conditions," it added.
The average maturity of India's debt is close to 10 years and over 96 per cent of it is in local currency, which means it has low dependence on foreign-currency borrowing to fund.
"Its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability," Moody's concluded.