Mumbai: Analysts have allayed fears of a widening current account deficit, which was at 2.1 per cent of GDP for the July-September period, and pegged it in the range of 1.4 to 1.8 per cent for fiscal year 2014-15 due to falling crude oil prices.
"With the crude price set to average at $74 per barrel during October-March period from $107 per barrel in the first half, we expect CAD (current account deficit) to narrow to 1.4 per cent of GDP in FY15 (2014-15) and 1.1 per cent in FY16 (2015-16)," Bank of America-Merrill Lynch said in a report here.
In July-September, current account deficit widened to $10.1 billion, or 2.1 per cent of GDP, from $7.9 billion, or 1.7 per cent of GDP, in the first quarter.
Last fiscal year, the country's current account deficit stood at 1.7 per cent of GDP and in 2012-13, the deficit was at a high of 4.7 per cent, forcing the government to increase gold import duty and take many other measures.
The widening of current account deficit in Q2 was on account of moderation in export growth which stood at 4.9 per cent in the period as against 10.6 per cent in the first quarter, along with acceleration in gold imports which surged 8.1 per cent in the second quarter of this fiscal year.
"The recent relaxation in gold import norms and the subsequent rise in gold imports will be more than offset by the benefits to the current account owing to lower oil prices," Japanese brokerage house Nomura said.
On Tuesday, Brent crude slipped to a five-year low of $66 per barrel on supply glut and is seen falling further. Since June, the Indian basket crude has fallen over 34 per cent.
According to Nomura, every $10 fall in oil prices lowers the oil import bill by around $9 billion. Last fiscal year, the country imported crude worth $155 billion with an average price of close to $110 a barrel.
The government has recently withdrawn the 80:20 scheme on gold imports.
DBS Bank in a report said it expects the current account deficit to stay within 1.5-1.8 per cent range this fiscal.
"This year's CAD is well within the central bank's comfort range and funding needs will be well-cushioned by flows attracted to the revival in growth and profitability," the DBS Bank report said.
"We estimate the RBI will still be able to maintain the critical eight-month import cover in March 2016, even if it sells $15 billion of forex reserves to defend the 65 level," BofA-ML said.
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