India has ample forex buffers to withstand pressure on credit worthiness: S&P Global

India has built up buffers against cyclical difficulties and has ample foreign exchange reserves to withstand pressure on credit worthiness, S&P Global Ratings said on Thursday.

Speaking at the India Credit Spotlight 2022 webinar, S&P Sovereign & International Public Finance Ratings Director Andrew Wood said the country has a strong external balance sheet and limited external debt, making debt servicing not so expensive.

“The country has built up buffers against cyclical difficulties like those, which we are experiencing right now,” Mr. Wood said.

He said the rating agency did not expect near-term pressures to have a serious impact on India’s credit worthiness.

“We are expecting a strong level of GDP growth of 7.3% this fiscal,” he said, adding the rupee exchange rate movement against the U.S. dollar had been moderate.

The rupee has depreciated about 7% against the U.S. currency this year but has performed better than its emerging market peers.

Mr. Wood said India had “ample buffer” in its foreign exchange reserves and the forex kitty is expected to recover to $600 billion by the end of this year. Forex reserve stood at $570.74 billion as of August 12.

The U.S.-based agency has a ‘BBB-‘ rating on India with a stable outlook.

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

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

The Indian economy expanded 8.7% in the last fiscal (FY22).

“Inflation is going to be a key concern for the economy for this year. We expect a 6.8% inflation rate this year with risk to upside,” Mr. Rana noted.

He said although food inflation was easing, core or manufactured product inflation still remained sticky.

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

S&P said it expected the Reserve Bank of India to raise interest rates further to 5.65% to tame inflation.

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

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

To tame stubbornly high inflation, the RBI has raised the key interest rate three times this year to 5.4%.

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