India has enough forex buffer to withstand creditworthiness pressure: S&P

New Delhi: S&P Global Ratings on Thursday said India has built up a buffer against cyclical difficulties and has enough forex reserves to withstand pressure on creditworthiness.

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

“The country has built up buffers against cyclical difficulties similar to those we are experiencing now,” Wood said.

He said the rating agency does not expect any near-term pressures to have a serious impact on India’s credibility.

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

The rupee has depreciated around 7 per cent against the US currency this year, but has outperformed its emerging market peers.

Wood said India has a “substantial buffer” in its forex reserves and the forex kitty is expected to reach USD 600 billion by the end of this year. The forex reserves stood at US$ 570.74 billion as of August 12.

The US-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 were improving.

After GDP growth of 7.3 per cent in the current fiscal, economic growth is expected to be 6.5-6.7 per cent in the next fiscal.

The Indian economy expanded by 8.7 percent in the last financial year (2021-22).

“Inflation is going to be a major concern for the economy this year. We expect inflation to rise to 6.8 per cent this year,” Rana said.

He said that though food inflation is coming down, basic or manufactured product inflation still remains stable.

He said a good monsoon would have a favorable impact on food inflation, but higher energy prices would put pressure on overall inflation.

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

Retail inflation remained above RBI’s comfort level for the seventh consecutive month and stood at 6.71 per cent in July.

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

To control inflation, the RBI has increased the key interest rates three times to 5.40 per cent this year.

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