India among countries least vulnerable to currency pressures: Moody’s


Mumbai, Jun 28: India is among the countries least vulnerable to currency pressures as a result of a stronger dollar, Moody’s Investor Service said.
Moody’s reaffirmation of the health of the Indian economy comes at a time when the rupee has breached the 69 level vis-à-vis the dollar that has gained on the back of trade wars with China and stronger US domestic data.
According to Moody’s the strengthening dollar since mid-April has prompted sharp currency depreciation coupled with a significant decline in foreign exchange reserves in a number of emerging and frontier market countries. “To the extent that these currency fluctuations reflect capital outflows or significantly lower external inflows, they are credit negative for sovereigns with large external funding needs,” said Moody’s.
While India has large external funding needs thanks to its high current account deficit, it is not among the vulnerable countries unlike 2013 when it was a part of the `fragile five’ weak economies. According to Reserve Bank of India data, India’s forex reserves stood at $410 billion as on June 15, 2018.
Since 2013, India has received a rating upgrade and the macroeconomic fundamentals have improved. India with a Baa2, stable rating, Brazil (Ba2 stable), China (A1 stable), Mexico (A3 stable), Russia (Ba1 positive) are among the least vulnerable to currency pressures according to Moody’s. “Although India’s current account deficit has widened, driven in part by the recent rise in oil prices, it remains modest relative to gross domestic product and is largely financed by equity inflows, including foreign direct investment. 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,” Moody’s said.
According to Moody’s, Argentina with a B2 (stable) sovereign rating, Ghana (B3 stable), Mongolia (B3 stable), Pakistan (B3 negative), Sri Lanka (B1 negative), Turkey (Ba2 RUR-), Zambia (B3 stable) are among the most vulnerable to a US dollar appreciation.