A fall in commodity prices leads to the narrowing of India’s record current-account deficit as it eases pressure on the rupee, damps inflation, and boosts the scope for a further reduction in interest rates. The prices of gold, on the other hand, account for more than two-thirds of the deficit, which has reached $32.6 billion in the quarter by December 31, as recorded by the Reserve Bank of India.
The rupee appreciated 0.9 percent in Mumbai yesterday, which was the most in three months, on optimism falling oil and gold prices will trim the deficit.
In addition, India’s finance minister plans to visit North America in an attempt to attract foreign direct investments. This is because the country relies on more volatile share and bond inflows to fund the imbalance in the trade.
The Indians consider this fall of gold prices manna from heaven for their economy. It would be great if this trend continues, along with the reduction of the current-account deficit and inflation, as it will provide more breathing space on easing policy for the Reserve Bank.
Find out more in this Bloomberg news story.