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Centre’s steps may not stop rupee sliding: economists
Why in the news ?
- According to the economists, the recent measures announced by the government to address widening current account deficit and attract inflows to stabilise the currency may not yield result immediately and the rupee could be under further pressure.
Background
- India’s CAD jumped to 2.4 per cent of Gross Domestic Product in the first quarter of 2018-19, from 1.9 per cent in March 2018.
- The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.
- A sharp depreciation in the rupee and the spike in crude oil price has led to rise in CAD resulting in capital outflows.
- Sources said five steps taken by the government (see box) can potentially attract capital flows of around $10 billion but these will mostly be in the debt segment.
Details
- Government had announced specific steps to attract dollars, to contain the widening current account deficit (CAD) and check the fall of the rupee.
- The steps were primarily aimed at easing conditions related to external commercial borrowings, hedging conditions for infrastructure loans, and relaxing restrictions on masala bonds.
- The rupee went close to 73 per dollar last week, weakening by about 13% in 2018 on the back of rising oil prices and widening current account deficit.
- Concerns over trade wars have also made emerging market currencies vulnerable, along with the strengthening dollar.
- As per some economists, the capital account measures announced are unlikely to result in any significant shift in fund flows in the immediate future.
- The steps would have better suited when the sentiment in the global market is positive towards emerging markets and when it is relatively easy for emerging market corporates to raise money abroad.
Source
The Hindu