SBI report: CAD likely to be lower at 3% this fiscal

SBI report: State Bank of India has lowered the current account deficit (CAD) at 3% for this fiscal (2022-23) as against the minimum consensus of 3.5%.

Reason: Rising software exports, remittances and a likely $5-billion jump in forex reserves via swap deals.

November 2022 Current Affairs Quiz

CAD: The country is importing more goods and services than it is exporting.

The biggest impact on CAD is oil imports, which form as much as 30% of the country’s import bills.

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.