CAD, rupee under pressure as global oil prices surge
India imports close to 85% of its crude oil requirement and any increase in global prices causes the import bill to shoot up
image for illustrative purpose
India's CAD jumped 7-fold to $9.2 bn in the April-June quarter compared to the corresponding figure of $1.3 bn in the preceding quarter. With the continuing surge in oil prices and slowing exports due to a decline in demand in global markets this is expected to widen further.
The increase in international crude oil prices has spilled over into the October - December quarter, raising the spectre of a higher current account deficit (CAD) deficit for India and more pressure on the rupee going ahead.
The country imports close to 85 per cent of its crude oil requirement and any increase in global prices causes the import bill to shoot up. Since large payments have to be made in dollars to buy crude, the rupee takes a hit vis-a-vis the American currency.
The benchmark West Texas Intermediate crude rose above $91 a barrel on Monday after soaring 29 per cent in the three months to September, the biggest third-quarter gain in almost two decades, according to a Bloomberg report. The benchmark Brent crude is already hovering at around $95 a barrel.
With rising crude oil prices in the international market pushing up the demand for dollars, the Indian rupee has slumped to record lows below 83 against the US greenback.
India's current account deficit (CAD) jumped 7-fold to $9.2 billion in the April-June quarter compared to the corresponding figure of $1.3 billion in the preceding quarter, according to RBI data released last week. With the continuing surge in oil prices and slowing exports due to a decline in demand in global markets this is expected to widen further.
CAD for April-June quarter of 2023-24 was 1.1 per cent of GDP. According to Emkay Global Financial Services lead economist Madhavi Arora, the July-September quarter will see a "substantial widening of CAD" to 2.4 per cent of GDP on account of higher oil prices, higher core imports and further slowing of services exports.
Going ahead much will depend on oil prices in global markets. RBI has been releasing dollars in the market to prop up the rupee this has not been able to stem the slide of the Indian currency. This has also resulted in a decline in the country’s foreign exchange reserves in September.
India’s forex kitty declined for a third consecutive week to a four-month low of $590.7 billion as of September 22, data released by the RBI on Friday showed. The forex reserves have fallen by as much as $8.2 billion in three weeks. The decline in the foreign exchange reserves is a cause for concern as the RBI well be left less space to curb the volatility in the rupee through its market interventions.
