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India's strong forex kitty to help it ride out any external challenge: S&P
Aug 26, 2022

The strong buffers in the form of a robust foreign exchange reserve and limited external debt will help India ride out any challenge emerging on the external front, S&P said. It expects India's forex kitty to grow back to $600 billion by the end of this year. Forex reserve stood at USD 570.74 billion as of August 12.

'The country has built up buffers against cyclical difficulties like those, which we are experiencing right now,' S&P Sovereign & International Public Finance Ratings Director Andrew Wood said.

He said India's credit worthiness doesn't face any threat from near-term pressures. The US-based agency has a 'BBB-' rating on India with a stable outlook.

'We are expecting a strong level of GDP growth of 7.3 per cent this fiscal,' he said, adding the rupee exchange rate movement against the US dollar has been moderate.

he rupee has depreciated about 7 per cent against the US currency this year but has performed better than its emerging market peers.

S&P Global Ratings Economist Asia Pacific Vishrut Rana said economic activity and consumer confidence have been improving.

After a 7.3 per cent GDP growth this fiscal, the economic growth is expected to moderate to 6.5-6.7 per cent over the next fiscal year.

Indian economy expanded 8.7 per cent in the last fiscal (2021-22).

'Inflation is going to be a key concern for the economy for this year. We expect a 6.8 per cent inflation rate this year with risk to upside,' Rana noted.

He said although food inflation is easing, core or manufactured product inflation still remains sticky.

A good monsoon will have a favourable impact on food inflation but elevated energy prices will put pressure on overall inflation, he added.

S&P said it expects the Reserve Bank of India to raise interest rates further to 5.65 per cent to tame inflation.

Retail inflation remained above the RBI's comfort level for the seventh month in a row and was 6.71 per cent in July.

Wholesale price-based inflation remained in double-digits for the 16th month in July at 13.93 per cent.

To tame stubbornly high inflation, the RBI has hiked the key interest rate three times this year to 5.40 per cent.

The central bank had projected retail inflation to average 6.7 per cent in 2022-23.

economictimes.indiatimes.com

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