CAD to widen to 2.5% of GDP: Moody’s, economists

India’s current account deficit (CAD) will widen to 2.5% of the GDP in the current fiscal due to the higher oil prices that has been accentuated by rupee depreciation, Moody’s and other experts said. The rupee last week slid to a record low of 70.32 to a U.S. dollar as political turmoil in Turkey and concerns about China’s economic health continued to support safe-haven assets and weighed on emerging market currencies. Rajiv Biswas, APAC Chief Economist, IHS Markit, said the significant depreciation of the rupee against the dollar since the beginning of 2018 reflects a number of factors. “A key driver has been gradual U.S. Fed monetary policy tightening, which has resulted in dollar appreciation against many other currencies globally. However, the rupee weakness also reflects India’s widening current account deficit as higher world oil prices have pushed up oil import costs. “A further negative for the the rupee is that a number of economic crises in large emerging markets including Argentina, Venezuela and Turkey have made global investors more cautious about emerging markets’ currencies and equities,” he said. Sunil Sinha, Principal Economist, India Ratings and Research, said the rupee’s depreciation will have both a positive and a negative impact on the economy.

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