Higher CAD adds to the INR depreciation pressures - Acuite Ratings

With persistent rise in crude oil prices, CAD to widen to USD 105 bn in FY23 - Trade

India's merchandise trade deficit posted a record high level of USD 25.6 bn in Jun-22 from a deficit of USD 24.2 bn in May-22. With this, the cumulative trade deficit for Q1 FY23 has more than doubled to USD 70.2 bn as compared to USD 31.4 bn recorded in Q1 FY22. Sequentially, in value terms, exports further moderated for the fourth consecutive month to USD 37.9 bn in Jun-22 from USD 39.0 bn in the previous month, manifesting the adverse impact of the slowdown in the global economy due to the geopolitical crisis. On the other hand, imports increased marginally to USD 63.6 bn in Jun-22 from USD 63.2 bn in the previous month, given the rising crude oil bill.

Says Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research "Given the relentless rise in commodity prices particularly crude oil over the last six months, we project current account deficit (CAD) to widen to USD 105 bn in FY23 from USD 47 bn in FY22. The expectation of the expansion of the current account deficit is not just driven by elevated global commodity prices but is also linked to the unlocking of the economy reviving pent-up demand. Additionally, the rapid normalization of monetary policies and spurt in interest rates in developed economies have induced sustained capital outflows, aggravating the pressure on the capital account. The depreciation of the rupee in this background to 79-80 levels per dollar is not really surprising. Commodity prices, however, are showing signs of cooling down and if this trend persists along with the lower quantum of rate hikes than expected earlier in developed economies, a part of the depreciation is likely to be reversed."

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Source : Equity Bulls

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CAD INRDepreciation RiseinCrudePrice AcuiteRatings