India among countries least vulnerable to currency pressure: Moody's

India is among the 5 countries which are least vulnerable to currency pressures amid strengthening of the US dollar, because of low dependence on external capital inflows, Moody's Investors Service said today.

In a report on the impact of strengthening of the US dollar on other sovereigns, Moody's said the appreciation of USD has prompted a sharp currency depreciation and/or a significant decline in forex reserves in a number of emerging and frontier markets.

However, India, China, Brazil, Mexico and Russia are among the "least vulnerable" to currency pressures, it said.

"Large savings channelled through the financial sector allows these economies to largely fund themselves domestically, thereby lowering exposure to volatile portfolio flows," Moody's said.

The Indian rupee collapsed to a lifetime low of 69.10 against the US dollar in early trade today as rising crude oil prices deepened concerns about the country's current account deficit (CAD) and inflation dynamics.

Moody's said although India's CAD has widened, driven in part by the recent rise in oil prices, it remains modest as a percentage of GDP 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," said the US-based rating agency.

India's foreign exchange reserves in the week to June 15 stood at USD 410.07 billion.

CAD, which is the difference between the inflow and outflow of foreign exchange, jumped to USD 48.7 billion, or 1.9 per cent of GDP, in 2017-18 fiscal. This was higher than USD 14.4 billion, or 0.6 per cent, CAD in 2016-17 fiscal.

Moody's said India's large and relatively stable domestic financing base limits external vulnerability.

"India's limited external vulnerability is supported by a large and relatively stable domestic financing base for government debt, which contributes to the economy's resilience by sheltering it from abrupt changes in external financing conditions," it added.

Although India's debt affordability is relatively weak, the average maturity of debt is close to 10 years and over 96 per cent of it is in local currency.

"India's low dependence on foreign-currency borrowing to fund its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability," Moody's said.