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Fitch says no immediate threat to India of rating downgrade

The agency, however, warned that unchecked fiscal deficit and high inflation could lead to a negative rating action.

BT Online Bureau   New Delhi     Last Updated: August 23, 2013  | 15:49 IST

Global ratings agency Fitch has said there is no immediate trigger for India's rating downgrade and maintained 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.

The agency, however, warned that unchecked fiscal deficit and high inflation could lead to a negative rating action.

"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 on Thursday.

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 agency's note said India's foreign exchange reserves have come under pressure, but are still sizable.

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 per cent of GDP".

It, however, said that rapid private-sector credit growth, widening fiscal deficits or 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," the ratings agency said added.

Fitch 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.

With inputs from PTI

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