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India's CAD likely to widen to 2.5% of GDP in FY19: Moody's

International agency Moody's has said that India's current account deficit (CAD) is likely to widen to 2.5% of the GDP in the current fiscal (FY19) as compared to 1.5% of GDP in last financial year (FY18) on account of the higher oil prices that has been accentuated by rupee depreciation. The current account is the net difference between inflows and outflows of foreign currencies. The rupee recently slid to a record low of 70.32 to a U.S. dollar as political turmoil in Turkey and concerns about China's economic health continued to support safe-haven assets and weighed on emerging market currencies.

Moody's underlined while the weaker rupee will benefit exports at the margins, it is unlikely to reverse the trade deficit, which hit a five-year high of $18.02 billion in July. Net oil imports accounted for 2.6% of GDP in FY18 and will increase further in fiscal 2019.

Besides, Moody's Investor Services had cut India's growth forecast to 7.3% for calendar year 2018. However, it has maintained the estimate for 2019 at 7.5%. The agency stated “The Indian economy is in cyclical recovery led by both investment and consumption. However, higher oil prices and tighter financial conditions will weigh on the pace of acceleration. We expect GDP growth of about 7.3 per cent in 2018, down from our previous forecast of 7.5%. Our growth expectation for 2019 remains unchanged at 7.5%”.

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