Analysts see FY'15 CAD rising to 2.1-2.6% on growing imports
Mumbai: Current account deficit, which narrowed to 1.7 per cent of GDP in FY14, is likely to rise to 2.1-2.5 per cent this fiscal on higher imports of gold and other items as the economy
On the rupee, it expects some appreciation pressure on in the near term from greater portfolio flows. “However, we do not expect the rupee to appreciate significantly further due to the RBI's preference of building up reserves and preventing significant appreciation, the gradual worsening in the current account balance, and significant inflation differential with partner countries.”
Deutsche Bank in a report said CAD is no more a major concern for the economy. “In FY15, we expect CAD to rise to about USD 50 billion (2.3-2.5 percent of GDP), on higher imports (about 10 percent growth) and stable exports (7-8 per cent).
“As restrictions on gold imports get relaxed to some extent and as domestic demand starts picking up from the 2H of FY15, we expect imports growth to rise and stabilise, which ought to push the current account deficit higher. “But we are not particularly worried about this expected increase in CAD, as we would view this as a sign of stabilisation of domestic demand, rather than signals of any imbalances being created. We also would not worry too much about financing of CAD, as we remain optimistic about capital flows outlook, especially post the decisive election outcome,” Deutsche report said.
Domestic ratings agency Crisil pegged CAD to widen to 2.2 per cent of GDP or USD 47 billion in the current fiscal, as restrictions on gold imports are gradually withdrawn and imports of capital and consumption goods pick-up with economic recovery.
British brokerage Barclays describing the fall in CAD to a five-year low at 0.2 per cent of GDP in the March quarter, said this is the smallest deficit since March 2009. “The decline in the deficit continues to be driven by lower gold imports and softer non-oil, non-gold demand, which helped contain the merchandise trade deficit. Given that the government's measures to restrict gold imports largely remain in place, we do not think the current account will widen significantly in 1H FY15. This poses a risk that CAD will be smaller than our forecast of USD billion (2.4 per cent of GDP) for FY15.
Another domestic rating agency Icra described the sharply lower CAD print is largely in line with expectations, but warned that the elevated inflation and rupee strengthening are likely to erode the competitiveness of exports which will widen trade balance and push up CAD this fiscal to USD 40-45 billion.
“A revival in domestic consumption or investment would boost growth of non-oil, non-gold imports in H2 of FY15. Even if the 20:80 scheme for gold imports is continued, we expect CAD to widen to USD 40-45 billion in FY15. But lifting of curbs on gold imports may widen CAD by an additional USD 10-15 billion,” it said.