By Marc Jones
LONDON, Aug 22 (Reuters) - India and Indonesia are not at
immediate risk of credit rating downgrades, Fitch said on
Thursday, but it warned it could act if the countries'
governments fail to calm the current financial market tensions.
Fitch rates both India and Indonesia BBB- with a stable
outlook but the recent sharp sell-off in emerging markets,
sparked by worries of a scaling back of cheap U.S. financial
stimulus, has put the countries in the spotlight.
The rating agency said that with currency reserves still
ample despite the downward trajectory, and both governments
trying to mend economic imbalances, the market turbulence was
not "a trigger for rating action at this point."
Andrew Colquhoun, Fitch's senior director for sovereigns in
the region, said fears of an imminent balance of payments crises
were misplaced given the current positions but stressed
authorities needed to ensure market concerns were dealt with.
Both India and Indonesia's main stock markets
have plunged 12 percent in the last three weeks as
investors have started to head back to advanced economies like
the United States and Europe where growth and returns are
The countries' currencies have received a battering too. The
Indian rupee is at an all-time low after dropping 9
percent while the Indonesian rupiah is down 6.5
percent at a four-year trough.
"The question would be if the pressure on asset prices and
currencies intensified to a stage, and were long lasting enough,
to impact the economic stability in these economies," Colquhoun
"There would be a direct impact on credit worthiness if
sovereigns ran down foreign currency levels to dangerously low
levels. But we don't think we are there yet and there are good
prospects that we won't get there, assuming that policy
management is sufficiently robust enough."
BBB- is the last rung on the rating ladder above so-called
"junk" status that mainstream investors tend to steer clear of.
Fitch is slightly above S&P and Moody's which respectively rate
India BBB- negative and Baa3 and Indonesia BB+ stable and Baa3.
"What people are interested to see is whether the
authorities manage policies in such a way that economies are
kept on a sustainable growth path without the emergence of
public deficit, external imbalances, current account deficits
widening even further entrenched in inflationary pressure,"
"If there were signs that they were on an unsustainable path
I think it is something investors would react negatively to."