Current account deficit may have hit record high: Nomura

Brokerage house Nomura estimates that India’s current account deficit (dollar inflow minus dollar outflow) may have touched a new peak of 4.9% of GDP during the quarter ended September 30. The widening gap has been caused mainly by a worsening trade deficit (exports minus imports), and could put pressure on the rupee going forward, write Nomura economists Sonal Varma and Aman Mohunta in their report.

“According to monthly customs data, the trade deficit widened to 12.2% of GDP in Q3 from 9.7% in Q2. While oil prices have risen, most of this worsening is in the non-oil segment,” says the Nomura report.

“A surge in portfolio inflows due to recent reforms has ensured that net capital inflows are enough to finance the widening deficit. However, with the current account deficit at a record high, we worry that INR remains susceptible to a sudden reversal of flows and note that the recent real effective exchange rate appreciation could worsen the underlying imbalances,” says the report.

Source: Nomura