Fitch Ratings downgrade: Could a cut in US rating mean higher inflows to India, other EMs?

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Fitch cuts US credit rating to AA+ from AAA after debt limit standoffs; White House “strongly disagrees" In simple terms, credit rating shows the creditworthiness of an individual, company, or government. Different rating agencies follow different practices for assigning ratings. As per experts, for Fitch Ratings, 'AAA' rating is the best and 'AA+' is high-quality.

The US rating has just come down to 'AA+' from 'AAA' and the outlook is 'stable' so the creditworthiness of the US still remains strong. The US rating downgrade is an extraordinary thing and has the potential for a global impact. For example, it could result in higher interest rates on US government bonds which could result in higher interest payments on the national debt, putting additional strain on the government budget.

This could affect the overall economy and erode investor confidence, leading to negative market sentiment. This downgrade may also dent the stability of the US dollar which will influence the movement of global currencies with respect to it. Read more: Fitch downgrades US credit rating; here's what market experts say Experts do not see a significant impact of the US rating downgrade on foreign inflow as Fitch had already warned about the possibility of a downgrade in May.

The market might have factored in already. The US ratings downgrade was not followed by a knee-jerk reaction in the US financial market as the dollar and Treasury yields dipped marginally. "This rating change will not drastically impact the inflows into the emerging markets (EMs), including markets, primarily because the possibility of this downgrade was already flagged by Fitch in May only.