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Economy well prepared to weather Federal Reserve tightening, says Crisil

The agency said that improvements in CAD, growth-inflation mix, sufficient import cover and steeply falling crude oil prices have put the country on a stronger wicket.

twitter-logo PTI   Mumbai     Last Updated: December 19, 2014  | 09:43 IST
Economy well prepared to weather Fed tightening: Crisil
Photo: Reuters

The Indian economy is well prepared to deal with any eventuality arising out of spike in the interest rates by the US Federal reserve , which is sending a strong signal of rate hike early next year, rating agency Crisil said on Thursday.

"We are better prepared to handle shocks arising out of an expected increase in the US interest rates next year," Crisil chief economist Dharmakirti Joshi said in an interaction on the social media site Twitter.

Joshi said improvements in current account deficit (CAD), growth-inflation mix, sufficient import cover and steeply falling crude oil prices have put the country on a stronger wicket.

In a statement issued on Wednesday, the Federal Reserve said it would be 'patient' in deciding when to raise interest rates.

Federal Reserve chairperson Janet Yellen explained that 'patient' meant the bank was unlikely to raise rates for 'at least a couple of meetings', that would mean April next year.

Going forward into 2015, the country will be among a select few economies which will witness rising growth and falling inflation, Joshi added.

He said the recent fall in the rupee is on account of increased domestic demand for the dollar and global uncertainty.

He expects the rupee to likely appreciate once global volatility comes off.

"We expect external factor driven volatility in the short term but maintain our forecast of 60 to the dollar by March," Joshi said.

He said fall in crude prices is a net positive for the domestic economy, which is likely to clip to over 6 per cent in FY16 versus around 5 per cent this fiscal, he said adding, "steps to improve policy decision making and clear infra bottlenecks would gradually lift growth."

The rating agency sees a high probability of an interest rate cut by the Reserve Bank of India (RBI)  in first quarter of the next fiscal.

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