Funding current account deficit in FY14 to be tough: Nomura

Moneycontrol Bureau

Current account deficit is expected to ease to 4.3 percent in FY14, according to brokerage house Nomura. But financing it will be a major challenge, the brokerage house cautioned.

The RBI today announced the current account deficit for the January-March quarter, a day ahead of schedule, which is widely viewed as the central bank’s attempt at calming the market.

"We expect the overall current account deficit to moderate to 4.3% of GDP in FY14, as lower gold imports and lower commodity prices likely more than offset the impact of INR depreciation. However, in our view, financing the current account deficit this year will be the key challenge, as not only are there risks from lower portfolio inflows, but debt inflows such as short-term trade credit also suggest caution," said the Nomura note to clients.

"Therefore, overall, we expect lower capital inflows to offset any benefit from a lower current account deficit, which will maintain upward pressure on USD/INR," said the note.

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