Analysts see FY15 CAD at 1.4% on further likely fall in crude

Analysts have allayed fears of widening current account deficit, which is 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 the full 2014-15 fiscal due to falling crude oil prices.
"With the crude price set to average at USD 74 per barrel during October-March period from USD 107 per barrel in the first half, we expect CAD 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 the July-September period, the CAD widened to USD 10.1 billion, or 2.1 per cent of GDP, from USD 7.9 billion, or 1.7 per cent of GDP in the first quarter.

Last fiscal, the country's CAD 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 CAD in the second quarter was on account of a 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 an acceleration in gold imports which surged 8.1 per cent in the second quarter of this fiscal.
Japanese brokerage house Nomura said, "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."

Today Brent crude slipped to a five year low of USD 66 a 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 USD 10 fall in oil prices lowers the oil import bill by around USD 9 billion. Last fiscal, the country imported crude worth USD 155 billion with an average price of close to USD 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The government has recently withdrawn the 80:20 scheme on gold imports.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," 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 USD 15 billion of forex reserves to defend the 65 level," BofA-ML said.