Moneycontrol
Last Updated : Oct 11, 2018 07:05 PM IST | Source: Moneycontrol.com

CAD under pressure; govt closely monitoring rupee fluctuation: Top Fin Min official

The official said that oil prices have begun to stabilise, which should help the currency appreciate from hereon

Nikita Vashisht @nikita_vashisht

Falling price of Brent crude could provide some cushion to the depreciating rupee and thereby lead to an improvement in macroeconomic conditions, a top government official said on October 11.

"Brent (crude) fell by $3 in a day which is a big drop... This could help us keep the rupee calm," the official said.

Brent crude touched $81.21 a barrel on October 10, easing pressures emanating from higher cost of importing crude oil. It was trading at $81.71 a barrel on October 11.

The rupee has fallen more than 16 percent against the US dollar so far this year, making it the worst performing Asian currency in 2018.

The domestic currency opened at 74.31 and touched a record low of 74.45 to the dollar on October 11. The official said that oil prices have begun to stabilise, which should help the currency appreciate.

Brushing aside concerns about economic sanctions on Iran, India's third largest source for oil imports, the official said that if demand for Brent crude continues to fall, the rupee shouldn't depreciate further.

"If growth projection for oil goes down, Iran sanctions won't affect us," he said.

'Not happy with previous steps to curb CAD'

The government official, who did not wish to be identified, said that previous steps taken by the government to increase dollar inflow were insufficient and have not given desired results.

"We are not satisfied with results yet... We are monitoring the situation," he said, adding that government is working on "preparing the main strategy".

"We do have pressure on current account deficit (CAD) and we admit it... Our main concern is balance of payment, CAD and rupee," the official said.

A current account deficit is created when a country's imports exceed its exports. India's CAD widened to 2.4 percent of gross domestic product (GDP) in the April-June quarter this year.

Analysts, however, opine that CAD could widen further because of a higher import bill and a continuously depreciating rupee.

Another official said that the government will intervene under extreme conditions, if and when required.

"We will do whatever is required to solve CAD... The previous measures were only side steps," he said.

While the official said that "import compression is not feasible for India" and that "import restrictions were not the main line strategy", sources said that government could come out with a second list of items with higher import tariffs.

The government last month hiked import duty on high-end consumer items, including washing machines, air conditioners, footwear, diamonds, and jet fuel as a part of its plan to get foreign funds flowing back to India and to reduce CAD and stabilise the domestic currency.

While the total value of import of these 19 items in the year 2017-18 was about Rs 86,000 crore, the government is expected to earn around Rs 3,400 crore because of the hike in duty this year.
First Published on Oct 11, 2018 05:03 pm

tags #CAD #Economy

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