Crude price rise risk to current account deficit: Report

Globally, brent broke through the $80-a-barrel mark on Thursday for the first time since November 2014.

Crude oil prices may rise further in the coming months, following which India’s current account deficit will be around 2.4% in 2018-19, says a Goldman Sachs report.

According to the global financial services major, the rise in international crude prices poses risks to India’s current account deficit.

“Our commodities team expects oil prices to continue to rise over the course of this summer, before moderating slightly at the end of the year. We recently increased our 2018-19 current account deficit (CAD)forecast to 2.4% of GDP (from 2.1% of GDP earlier),” Goldman Sachs said in a research note.

CAD widened to 2% or $13.5 billion in the October-December quarter of 2017, up from 1.4%, or $8 billion, in the corresponding period a year ago.

Globally, brent broke through the $80-a-barrel mark on Thursday for the first time since November 2014.

“The recent spike in oil prices following the withdrawal of the US from the Iran nuclear deal poses additional upside risks to our headline inflation forecast. We estimate that a 10% increase in crude oil prices leads headline inflation to rise by 10 basis points,” the report noted.

Goldman Sachs forecasts 2018-19 headline CPI inflation to average 5.3%.

On RBI’s policy stance, the report said, a more hawkish stance by the central bank is likely following a weaker currency (the rupee has depreciated by 6.6% against the US dollar year-to-date) and concerns over a rising current account and fiscal deficit.

The Reserve Bank will announce its second bi-monthly monetary policy on June 6.

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Crude price rise risk to current account deficit: Report

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