India's current account deficit likely to surge 'significantly'

Signs show a push towards 6%.

According to DBS, after the 2Q (Jul-Sep) FY12/13 current account deficit touched a record high of 5.4% of GDP, the numbers for 3Q (out on 28 Mar) will be watched closely.

Most signs point towards significant increase in 3Q CAD towards 6.0%, as GDP growth slowed to sub-5.0% and merchandise trade shortfall ballooned further.

The trade deficitfor the quarter widened to average -USD 19.1bn from -USD 15.4bn in the prior twelve months.

Here's more from DBS:

The quantum of deficit more than offset the post-reform pick-up in portfolio inflows, with the rupee also under considerable pressure as a result (though off mid-Jun low).

Also built into the case were the RBI dollar sales worth USD 1.1bn in the quarter, though failed to translate into rupee strength.

Overall, notwithstanding the notable surplus in the service trade sector, the CAD release will add downside pressure on the rupee and stock market interests (latter is already at 4-month lows).

But to put things in context, these numbers are essentially backward looking, with nerves likely to settle thereafter as data so far in 4Q (Jan-Mar) points towards a scaling back in the CAD towards 5.0%.

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