New Delhi - The five-pronged strategy announced by the government to increase capital inflow into the country is unlikely to reverse the rupee depreciation, Moody’s Investors Service said.
The Indian government estimates that the measures, including exempting investors from withholding tax for offshore rupee-denominated (masala) bonds and allowing Indian banks to become market-makers, will increase capital inflows by USD 8-10 billion, or 0.3-0.4 per cent of GDP, in the fiscal year that ends March 31, 2019.
The government also announced its intention to curb imports and reiterated its commitment to this year’s fiscal deficit target.
“Although these measures provide credit positive support to India’s external account, they are unlikely to reverse the currency’s depreciation,” Moody’s said.
The rupee has depreciated more than 10 per cent against the US dollar since January 2018 and was at Rs 72.1 against the dollar as of September 21.
Moody's, however, said that strong macroeconomic fundamentals will keep the credit risks of a weaker currency at bay.