The rupee will appreciate from the current level due to sliding crude prices on the back of the downward revision of of global growth forecast by the International Monetary Fund (IMF), a senior finance ministry official said on Thursday.
He attributed the slump in the stock and currency market on Thursday to global cues.
On Wednesday, IMF said in an update to its World Economic Outlook that it was now predicting a 3.7% global growth in both 2018 and 2019, down from its July forecast of 3.9 % growth for both years. It further attributed it to the 2019 GDP losses of more than 0.9% in the US and 1.6% in China in 2019.
This led to Brent crude futures sliding down to $1.32, or 1.6% at $81.77 a barrel on Thursday. They had earlier touched their lowest since September 27 at $81.35, after closing 2.2% lower on Wednesday.
“What happened in the US yesterday had a ripple effect here today. The IMF has downgraded the global growth rate and the US growth rate for next year, and both these had impact on the markets,” the official told reporters.
The official said the underlying strength of the Indian economy was reflected in IMF’s growth projections, which retained its earlier GDP growth outlook at 7.3% for the current year while marginally paring it for 2019 to 7.3% from 7.4% announced in July.
However, the official admitted that the rupee, current account deficit (CAD) and balance of payments remained areas of concern for the government. “The government will take action at an appropriate time to check widening CAD and going forward there are indications that oil prices will fall, which will have positive implications on the rupee,” the official said.
Even though there are pressures on the current account deficit, the foreign exchange reserves are in a better position compared with 2015 to withstand it, he added. The rupee has lost more than 13% since the beginning of 2018. The CAD, difference between inflow and outflow of foreign exchange, widened to 2.4% of GDP in the April-June quarter.
He also said India stood to gain after the downgrade of growth forecast for US and China. “The Indian market is still relatively stable compared with other equity markets as people still perceive strength in Indian economy,” the official said.
“There are countries in the world which are unstable in terms of stock markets going up and down, in terms of inflation going up, currency also depreciating, plus rising oil prices, so they are having all macro factors affecting many of the emerging market economies. But, in our case in spite of the oil prices going up, the prediction of RBI for inflation is modest, which is something to rejoice about,” the official said.