State Bank of India has pencilled in lower current account deficit at 3 per cent for this fiscal as against the minimum consensus of 3.5 per cent, citing rising software exports, remittances and a likely USD 5-billion jump in forex reserves via swap deals.
Every USD 10 increase in crude prices impacts the Current Account Deficit (CAD) to the tune of 40 basis points while the same on fuel inflation is 50 bps and also results in 23 bps decline in growth, according to Soumyakanti Ghosh, the chief economic advisor at SBI.
CAD has a counter cyclical shock absorber, he said in a report on Thursday.
Exchange rate is the major contributor to software exports growth and 40 per cent of its variation is explained by exchange rates. “If we translated these numbers in actual terms, every Re 1 fall against the dollar leads to an increase in software exports by USD 250 million”. This, along with an expected USD 5 billion-forex reserve accrual by way of swap transactions and higher remittances, will cap CAD at 3 per cent of GDP as against the average lowest level projected for the year at 3.5 per cent, Ghosh said. The strong remittances and software exports have lowered CAD by 60 bps in the June quarter, adding that if this trends continued in the September quarter, then CAD would be below 3.5 per cent in the second quarter and at 3 per cent in the full fiscal.
