’Raw’ impact on economy: Brent’s $10 rise widens India’s CAD by 0.5%, oil hits 10-month high, analysts say

International crude oil prices are at a 10-month high after oil producers Saudi Arabia and Russia jointly extended voluntary output cuts of 1.3 million barrels per day (bpd) until the end of the year.

The economic impact of global oil supply has important implications for India, a net importer of crude oil, to provide price stability. Also, news shocks related to oil supply cause a continuous increase in consumer prices, affecting the value of the Indian currency and reducing domestic output.

High crude oil prices are said to have a domino effect on the economy, as price shocks are immediately transmitted to macroeconomic indicators. According to the latest estimates by market analysts, India’s current account deficit (CAD) — which measures the difference between exports and imports of goods and services — is also being hit by higher crude prices.

CAD is a key indicator of a country’s balance of payments, and with crude prices rising in the current scenario, every $10 rise in Brent futures will increase CAD by 0.5 percent.

According to the latest government data on CAD, the deficit narrowed to $1.3 billion in the January-March quarter of FY23, accounting for 0.2 percent of the country’s gross domestic product (GDP), the Reserve Bank of India (RBI) said. Estimates of India estimates that CAD will decline to $10 billion or 1 percent of GDP in the April-June quarter of the current fiscal year.

A lot more to come…

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