Falling rupee, rising CAD: What global brokerages suggest government

By: | Published: September 17, 2018 1:03 PM

For the last couple of days, the government has been busy mulling over plans to tackle falling rupee and widening current account deficit (CAD).

experts says rupee likely to not fall further, indian currencyThe government has also taken measures such as cutting down ‘non-necessary’ imports and easing overseas borrowing norms. (Reuters)

For the last couple of days, government has been busy mulling over plans to tackle falling rupee and widening current account deficit (CAD). The government has planned measures such as cutting down ‘non-necessary’ imports and easing overseas borrowing norms. In addition, there are plans to issue masala bonds to overseas’ investors as well.

Here’s what global brokerages are suggesting government:

Citi: The government’s intent to address structural current account deficit (CAD) problem is a right policy path. The identification of non-essential imports and barriers to be imposed will naturally take some time, said Citi. The global brokerage said it will not be surprised if USD/INR tries to test earlier high as a knee-jerk reaction. The October hike still possible but with a lower probability.

Morgan Stanley: The global brokerage said that these policy measures could be followed by other such measures in the future. It expects RBI to increase rates in its October meeting.

HSBC: The global brokerage said the policy action will need to get sequencing right in order to be effective. It expects a 50 bps rate hike in Q4. The budget math is looking rather tight given shortfalls in YTD GST revenues, lower than budgeted growth in direct tax collections and challenging disinvestment targets, said HSBC. The expenditure cuts and revenue mobilisation elsewhere in the budget math may eventually be needed, it said.

BofAML: The government needs to shore up reserves to cover up current account deficit (CAD), it said. The government and RBI need to do more with respect to forex. The NRI bonds will help shore up forex reserves, it said.

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