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

New Delhi: 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," Wood said.

He said the rating agency does not expect the 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 per cent this fiscal," he said, adding the rupee exchange rate movement against the US dollar has been moderate.

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

Wood said India has "ample buffer" in its foreign exchange reserves and the forex kitty is expected to recover to USD 600 billion by the end of this year. Forex reserve stood at USD 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 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.