Q1 2018, witnessed a battering for Indian Rupee, which is depreciated by 2% or 8% on an annualised basis
The depreciation had been consistent over the quarter one of 2018. What has caused this?
Factor One - Ballooning Trade Deficit - 16% higher in 2018
Q1 2018 imports are at record levels of US$ 121 billion compared to an average of US$ 110 billion in the 2017 quarters. Exports are also better in Q1 2018 but it has not increased at the same levels of imports compared to 2017. Trade Deficit in 2018 is 16% higher in Q1 2018 as compared to average of all months in 2017
in USD Million
Month
|
Exports
|
Imports
|
Trade Deficit
|
Qtly Deficit
|
Forex Reserves
|
Months of Import
|
Jan-17
|
22,356
|
32,261
|
-9,905
|
361,558
|
11.21
| |
Feb-17
|
24,726
|
34,248
|
-9,522
|
364,011
|
10.63
| |
Mar-17
|
29,300
|
39,950
|
-10,650
|
-30,077
|
369,955
|
9.26
|
Apr-17
|
24,635
|
37,884
|
-13,249
|
372,732
|
9.84
| |
May-17
|
24,014
|
37,856
|
-13,842
|
381,168
|
10.07
| |
Jun-17
|
23,562
|
36,522
|
-12,960
|
-40,051
|
386,539
|
10.58
|
Jul-17
|
22,543
|
33,993
|
-11,450
|
392,868
|
11.56
| |
Aug-17
|
23,818
|
35,463
|
-11,645
|
398,123
|
11.23
| |
Sep-17
|
28,613
|
37,595
|
-8,982
|
-32,077
|
399,657
|
10.63
|
Oct-17
|
23,098
|
37,117
|
-14,019
|
398,761
|
10.74
| |
Nov-17
|
26,195
|
40,025
|
-13,830
|
401,942
|
10.04
| |
Dec-17
|
27,030
|
41,910
|
-14,880
|
-42,729
|
409,367
|
9.77
|
Jan-18
|
24,383
|
40,682
|
-16,299
|
421,915
|
10.37
| |
Feb-18
|
25,834
|
37,813
|
-11,979
|
420,758
|
11.13
| |
Mar-18
|
29,110
|
42,800
|
-13,690
|
-41,968
|
424,361
|
9.91
|
Forex reserves though higher in terms of value, in terms of coverage of imports has dropped below 10 months in March 2018.
Factor Two - Increasing Oil Prices - 7% in Q1 2018
Crude Oil is moving up significantly due to decision of OPEC to cut production till end of 2018. Oil is projected to go up further and estimate is that it will cross US$ 70 per barrel soon and may even cross $ 75 considering the current conflicts going on.
US$ per barrel
Oil & related products account for 25% of Indian imports and when these prices move up there is significant pressure on Rupee
On back of weak dollar and trade conflict between US & China gold is moving up significantly
in Rs.per 10 gram
8% of India imports is gold. With prices of gold moving North there will be pressure on Rupee
Factor Four - Growing External Debt (borrowings)
in Billion US$
Month
|
External Debt
|
Jan-17
|
455.9
|
Apr-17
|
471.8
|
Jul-17
|
485.7
|
Sep-17
|
495.7
|
Dec-17
|
513.4
|
External debt is a part of the total debt that is owed to creditors outside the country. Not only the volume of increase in debt is high, it is also increasing at a good pace, compared to January it has increased by 13% in December. Another factor is interest rates especially of US which is slated to move up will further increase the debt burden. This higher debt burden plus higher interest rate burden will weigh upon the Rupee and will be depreciating it further.
Factor Five - Tax Cut in US
The recent corporate income tax rate cut in US from 35% to 20% and also reductions in personal income tax rates is slated to improve growth rates of US. This means a stronger USD which had depreciated the Rupee.
Summary
Rupee will continue to be under pressure of depreciation both due to domestic factors and international factors. Expect a depreciation of 2% every quarter for the year 2018.
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