The Indian economy is in for a rough ride, with rising oil prices set to continue weighing on its already-weakened currency, widen its deficit, and affect its growth outlook.
Rebounding oil prices — and India’s unrelenting demand for it — will push up oil imports and widen its current account deficit, which measures the flow of goods, services and investments into and out of the country, economists say.
That widening deficit will result in a weakening rupee, they say, as more imports mean India has to buy more foreign currencies to meet its needs.
“The INR (Indian rupee) is expected to continue to face depreciation pressures during the remainder of 2018, reflecting several factors including further US Fed rate hikes, India’s widening current account deficit, and negative global investor sentiment towards emerging markets currencies and assets,” IHS Markit Asia-Pacific Chief Economist Rajiv Biswas, said in an email to CNBC.
Biswas predicted that the rupee will depreciate further, falling to 72 rupees against the dollar by the end of 2018 and reaching 74 rupees by August 2019. The rupee was last at 70.16 against the dollar at the close of Monday — representing a 9.96 percent decline since the beginning of this year.
The rupee, along with the Indonesian rupiah and Philippine peso, will continue to be the most vulnerable in Asia, said a ANZ Research note.
India’s foreign reserves have been affected by these developments. (PTI)
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