Weak rupee to have limited effect on sovereign rating of India: Fitch

Depreciation of the rupee against the dollar will have limited impact on sovereign ratings of India, even as pressure on the corporate and banking sectors is likely to increase, Fitch Ratings said on Monday.

There could be further bouts of pressure on markets as global monetary tightening progresses, it said.  The impact on the ratings would be limited by the country's relatively strong external finances, especially the low level of external debt. 

Currency depreciation could nevertheless add to existing pressures in the corporate and banking sectors, it added.

The rupee has been among the emerging-market currencies affected by pressures from global monetary tightening and, more recently, contagion from the Turkey crisis. 

It has depreciated by around 9 per cent against the dollar since the start of 2018, making it the worst-performing major currency in Asia.

Idiosyncratic factors have also contributed, such as the widening of the trade deficit in July 2018 to its largest gap since May 2013, the rating agency said. 

Net portfolio outflows through mid-August totalled $5.5 billion for the year, mostly in bonds, compared with inflows of $27.9 billion over the same period in 2017.

Foreign direct investment inflows have also weakened and no longer cover the current account deficit – in other words, India's basic balance has turned negative, it said.