Few days after the government announced five-pronged strategy to prevent the rupee rout, global credit rating agency, Moody's Investors Service in its latest report has said that the government’s measures to boost capital inflow in to the country is unlikely to reverse the rupee depreciation.
The rating agency raised concerns on the measures taken by the government, underlining that the strategy will likely take time to affect capital inflows and the potential removal of hedging requirements may heighten corporates' exposure to currency fluctuations even though it could reduce some short-term pressure on the rupee. Moody's further noted that steps to reduce non-essential goods import may provide support to contain the imports bill, but will likely have a lagged effect.
As per the report, rising oil prices will weight on India's fiscal position, increasing expenditures. However, Moody's said that the large foreign-currency reserves provide additional policy space and flexibility for the central bank to manage external shocks and reduce the risk of sustained and large portfolio outflows, as well as pressure on the currency.
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