No immediate trigger for changing India's rating: Fitch

Global rating agency Fitch Thursday said there is no trigger for rating action, but India's economy is likely to continue facing pressure on account of rupee depreciation.

New Delhi: Global rating agency Fitch Thursday said there is no trigger for rating action, but India's economy is likely to continue facing pressure on account of rupee depreciation.

"These pressures have exceeded those of other emerging Asian economies, but Fitch Ratings does not view these developments as a trigger for rating action at this point," the agency said in a note.

The agency said it will maintain a 'Stable Outlook' on India's sovereign rating at 'BBB-', mainly because of the country's sizable forex reserves, fiscal deficit management and structural reforms.

It further said market anticipation of US Fed tapering of bond purchase appears to have prompted some shift in investor perceptions of the risks.

"Moreover, the current market volatility could persist for a while in view of continuing uncertainty over the timing and magnitude of an eventual unwinding of global central banks' quantitative easing," it added.

Referring to rupee depreciation, Fitch said the sharp weakening of the currency "reflects large or growing current account deficit" whose funding has been complicated by a reversal of global portfolio capital.

The rupee today plunged further by 89 paise to hit a new record low of 65.12 against the US dollar in early trade.

Earlier this week, leading agency Standard & Poor's had said it will maintain negative outlook for India as currency depreciation is adversely impacting investor confidence.

The Fitch note further said India's foreign-exchange reserves have come under pressure, but are still sizable. It said the country's forex reserves, which have fallen to USD 279 billion, still provide around 5.5 months of import cover.

Noting that the country has adjusted its economic policies, Fitch said, "In India, we expect fiscal policy restraint to persist, in line with last year's result, with the budget deficit remaining within 5 percent of GDP".

Fitch also noted that demand growth in excess of current supply-side capabilities could lead to a further widening in external imbalances.

Moreover, it said, rapid private-sector credit growth, widening fiscal deficits or sustained higher inflation could lead to a broader and more sustained loss of confidence among investors.

"This could potentially undermine economic and financial stability, and ultimately lead to negative rating action," Fitch rating said.

Referring to economic policies, Fitch said it believes "a central factor will be the strength of official commitment to managing demand so as to deliver sustainable growth without an intensification of vulnerabilities - such as fiscal deficits, inflation and/or external imbalances".

It further said structural reforms such as fuel subsidy reforms, "which may be politically difficult to achieve" are being undertaken in India, and these should help to shore up public finances over the medium-term, potentially supporting domestic savings and, ultimately, reducing external deficits.

Additional supply-side reforms, it added, could boost sustainable growth rates and attract greater foreign investment inflows, but likely to take more time to implement.

"Such initiatives would be credit-supportive. Fitch does not expect near-term implementation of large-scale supply-side reforms in either country in view of approaching elections in H114 (first half of 2014)," the agency said.