India's long-term credit outlook looks stable: Moody's

Credit rating agency Moody’s latest report says Asian credit is stable despite strengthening headwinds like a possible Fed taper anytime soon. Speaking to CNBC-TV18, Michael William Taylor, MD - Credit Policy Group, Moody's says the long-term credit outlook looks stable for Asian countries including those with high current account deficit like India and Indonesia. According to him, the actions taken by the Reserve Bank of India will tame inflation and support rupee going ahead.

However, Taylor believes if the 4.8 percent fiscal deficit target of India were to slip then it would not be credit positive and they will have to review India’s outlook if that situation were to materialise.

Also Read: Do not see strong buying of dollars by FIIs: HSBC Below is the verbatim transcript of Michael Taylor’s interview on CNBC-TV18 Q: What will happen to current account deficit (CAD) countries like India, do you think if there is a Fed taper we may not see even small issues related to balance of payments for high CAD countries like India?
A: We looked at the question of the credit conditions throughout the whole region and our view is that the credit outlook in the markets is stable and that includes those high deficit countries. The overall outlook in the region is solid. The countries have built up substantial reserves battles against the possibility of capital outflows and in many cases the banking systems are funded by domestic deposits that places them into a strong position. Q: What kind of range would you have for the Indian rupee for instance if taper were to happen, do you see pressures bringing the currency back to what it touched in August end 68/USD or do you have a different range in mind?
A: We don’t take a view on the rupee and the direction it may go in the short-term. Our role is to look at the credit outlook and the long-term credit outlook. In India it is being stable and the position is underpinned by several factors. One, the government deficit is largely domestically funded. The inflation has been high but there are reasons for that and the actions taken by the Reserve Bank of India (RBI) are positive from the point of view of addressing both the inflation outlook and also supporting the rupee. Q: You said that about India, would it also be true for Indonesia, Turkey, South Africa, other countries that were also pummeled in August?
A: Let me talk about Indonesia because others are outside my specific patch. The Indonesian credit rating is well supported, there is a strong position in terms of foreign exchange reserves and again the banking system is largely funded by domestic deposits and that provides an underpinning to the credit rating. Q: The Indian government has promised 4.8 percent fiscal deficit, if that were to slip to probably 4.9 or 5 percent, would that be event big enough for you to relook your credit rating?
A: We have already included in our credit rating the possibility of some slight slippage in terms of the overall level of the deficit. Obviously, it would not be credit positive if the deficit were to grow much larger than it is present and we would have to review our outlook if that situation were to materialise.