He also said that if crude oil trades at USD 130 per barrel, the current account deficit (CAD) will be 3.5 per cent, which will reduce the growth rate to 7.1 per cent.
If the FY23 average oil price rises to US$100 a barrel, it will reduce growth to around 7.6 per cent from the previously projected 8 per cent, inflation to rise from 4.5 per cent to 5 per cent, and the current account gap USD will rise. 86.6 billion or 2.5 percent of GDP and could rise to 3.5 percent if oil prices averaged at USD 130 billion.
In that case, inflation would drop to 5.7 per cent and GDP growth to 7.1 per cent, State Bank of India’s group chief economic advisor Soumya Kanti Ghosh said in a note on Monday.
The rupee is the most affected emerging market currency since Russia’s invasion of Ukraine and macroeconomic sanctions against Moscow.
Crude oil has been at a boil since the attack – rising from USD 93 to USD 130 a barrel last week, at the level of USD 110.
Russia supplies 14 percent of the global crude oil supply and 17 percent of the world’s natural gas.
The near-term outlook for the rupee remains challenging till geopolitical tensions ease. He added that with the uncertainty high, it could further reduce portfolio inflows, which have been in reverse gear with outflows of USD 12 billion so far in 2022.
The war has led to an increase in the prices of almost all other commodities, including agricultural commodities.
Anticipating a really tough time for the rupee, which had hit a record low of 77.01 last week, he said if the Ukraine conflict still continues, the rupee could fall to 77.5 by June and 77 by December 2022. There may be a slight correction from the dollar.
Even as the Russian-Ukraine conflict continues, though the rupee is likely to trade in the higher zone, the FY23 average should not exceed 76-78, with an appreciable bias, Ghosh said. .
During the last global financial crisis, the rupee continued to depreciate and declined by about 13 per cent during January 2008 to July 2011. However, after the crisis, volatility became significant and the rupee fell by 41 per cent during July 2011 to November. 2013.
On the impact of extreme volatility in crude oil prices on CAD, inflation and GDP, he said a USD 10 per barrel rise in Brent prices would lead to a 20-25 bps increase in inflation, 35 to 35 per cent in the current account deficit. bps will increase. Increase GDP, fiscal deficit by 8 bps and reduce GDP by 15-20 bps.
He said that in the next few months, crude oil staying above the $100 level and falling commodity prices could be Damocles’ sword for the emerging markets.
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