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In what could mean worsening macro stability of the country, India’s current account deficit (CAD) could widen to a 10-year high of 3.3% during the current financial year due to continued geopolitical tensions and surging oil prices, Morgan Stanley has said.

Widening CAD indicates that the value of imports is exceeding the value of exports. Experts suggest that CAD in the range of 2.5-3 per cent of GDP is not a cause of worry but CAD has fast widened to 2.7% of GDP in the quarter ending December 2021 from 1.3% of GDP in the quarter ending September 2021.

“We expect the current account deficit to widen to a 10-year high of 3.3% in F2023, above the policymakers' comfort range (of 2-2.5% of GDP), even as the current account deficit (ex oil) stays at ~2% in F2023," the note said.

The report also highlighted that India’s forex reserves have fallen to $597.7bn as of April 2022, the lowest since May 2021. Forex touched an all-time high of $642.5bn in September 2021 which is equivalent to the import cover of 11.3 months.

“In the wake of continued geopolitical tensions, the surge in oil prices is likely to be sustained, which would lead to deterioration in the current account deficit from a higher oil import bill," the note further added.

Meanwhile, crude oil prices increased on Wednesday due to supply concerns on the back of the European Union’s proposal to ban energy imports from Russia. The July contract of Brent futures on the Intercontinental Exchange was trading at $104.71 per barrel, higher by 2.20% from its previous close. The June contract of West Texas Intermediate rose 2.13% to $104.64 per barrel.

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