An appreciating rupee and the falling crude are two positive factors for the domestic economy which, if continued, will support the government in containing both fiscal and current account deficits, a Deutsche Bank report said today.
"The rising rupee, weakening trend in energy
prices create rare sweet spot for the country," the report said, adding that if the trend continues, it will positively impact fiscal deficit, which in turn will support containing inflation.
The report said for every 10% decline in global crude prices, fiscal deficit would decline by 0.28% of GDP and current account deficit (CAD) would ease by 0.16%.
"If the trend of an appreciating rupee and weakening energy prices continues, it will create a rare sweet spot for India, positively impacting its fiscal deficit and giving much needed support to the RBI which has been waiting for inflation to cool down," the report added.
While rupee has appreciated close to 4% on the back of stimulus measures announced by US Fed and European Central Bank along with reform measures taken up by the Government in September so far, crude has fallen by 2% due to the increasing worries about slowdown in China.
"We expect the rising rupee, weakening energy pricing trend to continue," it said, adding the rupee is showing an appreciating bias.
Importantly, it also said slowdown fear in China have muted the impact of stimulus announced by US and Eurozone on commodity prices.
"Slowdown fears in China have muted the fundamental attractiveness of industrial commodities and energy as an asset class," it said, adding expectations of muted energy prices are a strong positive for the domestic economy.
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