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  3. India well prepared to deal with rate hike by the Fed: Fitch

India well prepared to deal with rate hike by the Fed: Fitch

24 Sep 2014 Evaluate

Global rating agency, Fitch outlined that hiking of interest rates by US Federal Reserve by the middle of 2015, would surely have some impact in the form of capital outflows on emerging markets, including India. However, it also underscored that India's credit profile was much stronger than other EM peers as the country was well prepared to deal with external shocks, including a rate hike by the Fed.

The rating agency which recently conducted a stress test to ascertain the impact of the US Fed rate hike on emerging markets, pointed that countries like Hungary, Mongolia and potentially Turkey were more vulnerable to the impact of rate hikes as compared to other countries that showed less vulnerability, which included names like India as well as Vietnam and Brazil.

It also emphasized that the decision of hike interest rates was bound to have affect emerging markets around the world, especially the BRICS (Brazil, Russia, India, China and South Africa). However, asserted that cycle was certainly in the favour of India, which saw strong 5.7% growth number in the second quarter, due to lower base effect. The agency also lauded RBI’s approach of taking preventive decision, i.e. by slashing has cut its current account deficit by more than half -- from $87.8 billion to $32.4 billion -- through curbs on gold imports and increases on other duties.

It was the reduction in the Current Account Deficits (CAD) since 2013 that has prevented any rating downgrade for the country from Fitch, which has consolidated India's rating at its current level of BBB minus with a stable outlook and unveiled a chance of future positive action if the country could further reduce its fiscal deficit and government debt levels.

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