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30
Aug 2018
 |
Moody's (The Total Investment & Insurance Solutions)
Global credit ratings,
research and risk analysis firm Moody's Investors Service on Wednesday said
higher oil prices and interest rates might put pressure on the India's fiscal
and the current account deficit.
However, the firm in a
report pointed out that country's growth prospects remain in line with the
economy's potential of around 7.5 per cent this year and the next.
"This robust growth,
large foreign exchange reserves, a predominantly domestic funding base,
strengthened monetary policy management and macro-prudential regulations on
bank lending in foreign currency will broadly contain the credit impact of the
higher oil prices and rising interest rates," Moody's Vice President and
Senior Analyst Joy Rankothge said in a statement.
According to the Moody's
report, oil prices at current levels will raise expenditures and add to
existing pressures on the fiscal position.
"While the government
may cut back on capital expenditures to limit fiscal slippage, as has happened
in previous years, such cuts may not fully offset the revenue losses and higher
spending on energy subsidies and price support for crops," the statement
said. The Total Investment & Insurance Solutions
"Moody's, therefore,
sees risks that the Central government deficit will be wider than targeted in
the short term. However, a temporary fiscal slippage, if any, will not offset
India's robust nominal GDP growth and large domestic financing base which helps
keep the government's debt burden broadly stable."
On the current account, the
report said higher oil prices will contribute to a wider deficit, but the gap
will remain significantly narrower than five years ago.
The report noted that
economy-wide external debt is limited and the country's foreign exchange
reserve buffers are ample. Overall, Moody's continues to assess India's
external vulnerability risk as low.
"The country's low
dependence on foreign currency debt and long average debt maturity will contain
the impact of rising rates and currency depreciation," the statement said.
The Total Investment & Insurance Solutions
"India's average
government debt maturity is around 10 years and the government almost entirely
relies on local currency-denominated financing, helping stabilize debt
affordability." The Total Investment & Insurance Solutions
As per the report,
regulatory restrictions on foreign currency borrowings limit exchange rate
risks for the banks. The Total Investment & Insurance Solutions
"The regulated nature
of foreign currency transactions for both banks and corporates will limit the
direct impact of exchange rate volatility on their operations," the
statement added.The Total Investment & Insurance Solutions
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