India's forex buffers sufficient to cushion risks: Fitch

New Delhi, October 19

India’s external buffers are sufficient to cushion risks associated with rapid monetary policy tightening in the US and high global commodity prices, and risk to the sovereign rating from external pressure is limited, Fitch Ratings said on Wednesday.

It expects the country’s foreign exchange reserves to remain robust and current-account deficit (CAD) to be contained at a sustainable level and reach 3.4% of GDP this fiscal year, up from 1.2% in last financial year.

The projections

• The global ratings agency expects the country’s forex reserves to remain robust and current-account deficit to be contained at a sustainable level and reach 3.4% of GDP this fiscal year
• It said public finances remain the key driver of the rating and India is relatively insulated from global volatility due to the sovereign’s limited reliance on external financing

“India’s external buffers appear sufficient to cushion risks associated with rapid monetary policy tightening in the US and high global commodity prices,” Fitch Ratings said, adding risk to India’s sovereign rating from external pressures is limited.

It said public finances remain the key driver of the rating and India is relatively insulated from global volatility due to the sovereign’s limited reliance on external financing.

India’s foreign reserves fell by almost $101 billion in January-September 2022, but are still large at around $533 billion. The decline has reversed much of the reserve accumulation that occurred during the pandemic, and reflects valuation effects, a widening CAD, and some intervention by the Reserve Bank of India (RBI) to support the rupee’s exchange rate.

“Reserve cover remains strong at about 8.9 months of imports in September. This is higher than during the “taper tantrum” in 2013, when it stood at about 6.5 months, and offers the authorities scope to utilise reserves to smooth periods of external stress,” it said.