Moody's Investor Service has pegged India as among the countries least vulnerable to currency pressures due to a stronger dollar. The agency's reaffirmation of the health of the Indian economy comes at a time when the rupee has breached the 69 level through the dollar that has gained on the back of trade wars with China and stronger US domestic data. As per Moody's, the strengthening dollar since mid-April prompted sharp currency depreciation coupled with a significant decline in foreign exchange reserves in a number of emerging and frontier market countries.
It said, “To the extent that these currency fluctuations reflect capital outflows or significantly lower external inflows, they are credit negative for sovereigns with large external funding needs.” While India has large external funding needs thanks to its high current account deficit, it is not among the vulnerable countries unlike 2013 when it was a part of the “fragile five” weak economies. According to Reserve Bank of India data, India's forex reserves stood at $410 billion as on June 15, 2018.
Moody's said, “Although India's current account deficit has widened, driven in part by the recent rise in oil prices, it remains modest relative to gross domestic product and is largely financed by equity inflows, including foreign direct investment. India's significant build-up of foreign exchange reserves in recent years to all-time highs provides a support buffer to help mitigate external vulnerability risk.” According to the agency, Argentina with a B2 (stable) sovereign rating, Ghana (B3 stable), Mongolia (B3 stable), Pakistan (B3 negative), Sri Lanka (B1 negative), Turkey (Ba2 RUR-), Zambia (B3 stable) are among the most vulnerable to a US dollar appreciation.
