The Indian rupee continues its precipitous fall. The currency collapsed below the level of 72 rupees per dollar and, apparently, it is going to dive even deeper. In general, August was one of the worst months for the rupee in the past three years. The national currency fails to keep pace with the oil price. India is highly dependent on oil imports, as it is forced to be one of the largest oil buyers.
After the recent spike in prices, the cost of oil imports jumped by 76% in July, as compared to the corresponding period last year, and reached $10.2 billion. As a result, the trade deficit increased to a five-year high of $18 billion. While world oil demand is growing, India has to buy more foreign currency in order to meet its needs. This exerts downward pressure on the rupee. Among the Asian currencies, it was the worst performer this year, having lost more than 11%. The rate of the decline forced analysts to revise forecasts for the currency. Mizuho now expects that the exchange rate of the Indian currency will achieve 70.50 by the end of the year compared with the previous estimate of 68.80.
According to Australia and New Zealand Banking Group Ltd., during this fiscal year, the current account deficit of India will most likely rise to 2.6% of GDP from 1.5% a year earlier. The International Monetary Fund predicts that the third largest economy of Asia will expand by 7.3% in the fiscal year, which will end in March 2019, and by 7.5% next year.
