Fitch sends rating warning shot to India

LONDON Thu Aug 22, 2013 8:08pm IST

1 of 4. Workers install bamboo poles on a billboard under construction along a road on the outskirts of Ahmedabad May 11, 2013.

Credit: Reuters/Amit Dave/Files

Related Topics

LONDON (Reuters) - India and Indonesia are not at immediate risk of credit rating downgrades, Fitch said on Thursday, but it warned it could act if the countries' governments fail to calm the current financial market tensions.

Fitch rates both India and Indonesia BBB- with a stable outlook but the recent sharp sell-off in emerging markets, sparked by worries of a scaling back of cheap U.S. financial stimulus, has put the countries in the spotlight.

The rating agency said that with currency reserves still ample despite the downward trajectory, and both governments trying to mend economic imbalances, the market turbulence was not "a trigger for rating action at this point."

Andrew Colquhoun, Fitch's senior director for sovereigns in the region, said fears of an imminent balance of payments crises were misplaced given the current positions but stressed authorities needed to ensure market concerns were dealt with.

Both India and Indonesia's main stock markets .BSESN .JKSE have plunged 12 percent in the last three weeks as investors have started to head back to advanced economies like the United States and Europe where growth and returns are picking up.

The countries' currencies have received a battering too. The Indian rupee is at an all-time low after dropping 9 percent while the Indonesian rupiah is down 6.5 percent at a four-year trough.

"The question would be if the pressure on asset prices and currencies intensified to a stage, and were long lasting enough, to impact the economic stability in these economies," Colquhoun said.

"There would be a direct impact on credit worthiness if sovereigns ran down foreign currency levels to dangerously low levels. But we don't think we are there yet and there are good prospects that we won't get there, assuming that policy management is sufficiently robust enough."

BBB- is the last rung on the rating ladder above so-called "junk" status that mainstream investors tend to steer clear of. Fitch is slightly above S&P and Moody's which respectively rate India BBB- negative and Baa3 and Indonesia BB+ stable and Baa3.

"What people are interested to see is whether the authorities manage policies in such a way that economies are kept on a sustainable growth path without the emergence of public deficit, external imbalances, current account deficits widening even further entrenched in inflationary pressure," Colquhoun added.

"If there were signs that they were on an unsustainable path I think it is something investors would react negatively to."

(Reporting by Marc Jones; Editing by Toby Chopra)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Earnings Season

Earnings Season

Wipro sees rosier end to year as U.S. clients spend.  Full Article 

DLF Appeals

DLF Appeals

DLF seeks interim relief from capital market ban  Full Article 

Business Climate

Business Climate

Fears for tough penalties grow as India cleans up business  Full Article 

New Email Service

New Email Service

Google launches new email service dubbed "Inbox".  Full Article 

Falling Oil Prices

Falling Oil Prices

Indian consumers respond to softer oil, food prices  Full Article 

Pollution Levels

Pollution Levels

Delhi braces for worst air quality this Diwali week.  Full Article 

Book Keeping

Book Keeping

RBI fires warning shots on companies' lack of FX hedging.  Full Article 

Policy Repo Rate

Policy Repo Rate

Most external members suggested rate cut in RBI's Sept review.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage