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BUSINESS EYE NOVEMBER 18, 2022 | The Indian Eye 32

Mixed Signal: Experts keep an eye on rising

dollar, GDP, oil bill and software exports

Every $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

OUR BUREAU
Mumbai/New Delhi
he Reserve Bank of India
(RBI) has actively intervened
Tto curb rupee’s volatility as var-
ious global factors continue to keep
the currency under pressure. The
central bank could continue to do so
if uncertainty on more interest rate
hike from the US Federal Reserve
goes on or if geopolitics tension be-
tween Russia and Ukraine escalates.
This is the assessment of the
leading brokerage firm Motilal Os-
wal Financial Services (MOFSL).
The US Federal Reserve raised the
key policy rate by 75 basis points to
over a decade high at 3.75-4.0 per
cent in its latest monetary policy
meeting. Notably, this is the fourth
consecutive hike of such magnitude.
During such monetary policy tight-
ening in advanced economies, big in-
vestors tend to move towards those
economies for stable and high re-
turns on their investments. Fund out-
flow, however, is a negative for rupee.
With a view to preventing a steep India’s forex reserves have declined from $642 billion in September 2021 to just about $531 billion last week. They are expected
depreciation in the rupee, the RBI to rise by $5 billion as swap transactions reverse
typically intervenes in the market
through liquidity management, in-
cluding through the selling of dollars. tion is 50 bps and also results in 23 would be below 3.5 per cent in the and consequently widening the CAD.
“The central bank has accumulated bps decline in growth. second quarter and at 3 per cent in Software exports have been ris-
these reserves to be utilized in these According to Soumyakanti the full fiscal. Even otherwise, the ing with the share of offsite mode of
kinds of situations,” said Gaurang Ghosh, the chief economic advisor at chances of it exceeding 3.5 per cent exports of software services by do-
Somaiya, forex and bullion analyst at SBI, exchange rate is the major con- of GDP are minimal, he added. mestic IT services companies soaring
MOFSL. tributor to software exports growth to 88.8 per cent in FY22 from 82.8
On MOSL’s support and resis- and 40 per cent of its variation is According to Ghosh, forex re- per cent five years ago.
tance for rupee by 2022, he said the explained by exchange rates. “If we Meanwhile, the rupee depreciat-
USDINR pair is expected to trade translated these numbers in actual serves, which have declined ed by 30 paise to close at 81.77 (pro-
with a positive bias and could hit terms, every Re 1 fall against the dol- from $642 billion in September visional) against the US dollar on
fresh highs of 85 to 85.50 levels and lar leads to an increase in software Thursday, as participants remained
on the downside, it could be restrict- exports by $250 million”. 2021 to just about $531 billion cautious ahead of the release of
ed to the levels of 80.20. This, along with an expected $5 last week, are expected to rise the US inflation data. Forex traders
Meanwhile, State Bank of India billion-forex reserve accrual by way said a weak trend domestic equities
has penciled in lower current account of swap transactions and higher re- by $5 billion as swap transac- also weighed on investor sentiments.
deficit at 3 per cent for this fiscal as mittances, will cap CAD at 3 per cent tions reverse. “Rupee came under pressure in the
against the minimum consensus of of GDP as against the average lowest first half of the session ahead of the
3.5 per cent, citing rising software ex- level projected for the year at 3.5 per US inflation number that will be re-
ports, remittances and a likely $5-bil- cent, Ghosh said. The biggest impact on CAD is leased today. Expectation is that in-
lion jump in forex reserves via swap The strong remittances and soft- oil imports, which form as much as flation could come in lower and that
deals. Every $10 increase in crude ware exports have lowered CAD 30 per cent of the country’s import could keep gains capped for the dol-
prices impacts the Current Account by 60 bps in the June quarter, add- bills. Therefore, any increase in oil lar,” said Gaurang Somaiya, Forex &
Deficit (CAD) to the tune of 40 basis ing that if this trend continued in price has a direct impact on the trade Bullion Analyst, Motilal Oswal Fi-
points while the same on fuel infla- the September quarter, then CAD deficit by increasing the import bill nancial Services.

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