See trade deficit in range of $16bn/month: Barclays Cap

Siddhartha Sanyal of Barclays Capital believes that a huge inflow from NRI bonds and some significant policy initiative on the part of government are required to support the battered rupee. Most of the emerging market (EM) currencies are facing pressure due to the strengthening of dollar, the rupee fell to an all time low of 61 per dollar on Monday.

As gold becomes less of a lucrative import, Sanyal sees trade deficit recovering and coming in the range of USD 16 billion a month. "It might then significantly fall below USD 15 billion," he added. In May the trade deficit was at a record high of USD 20 million.  He told CNBC-TV18 as the trade deficit narrows the current account deficit (CAD) can also get better compared to the last year. Also read: Rupee to stay in 58-62/$ range now; CAD may dip: StanChart Below is the verbatim transcript of his interview to CNBC-TV18 Q: What is your estimate of the trade deficit? We are beginning to see telltale evidence of people saying that they are able to do better on exports. Are you getting a sense that trade deficit could narrow? What is your trajectory for trade deficit both because imports are expensive and exports are lucrative? A: Yes, we would expect a somewhat better trajectory for trade deficit. However, but not so much really for an uptick in exports, rather than that we are actually expecting some kind of support from lower import numbers. Q: Does it get better than USD 15 billion? It would be a relief from USD 20 billion of course, but do you think we would be ticking even lower on trade deficit as gold becomes less of a lucrative import? A: On a sustained basis for the whole year our number for trade deficit is still around USD 200 billion. So, on an average it is still around USD 16 billion a month. One or two months it might actually fall significantly below USD 15 billion, but more often than not we are seeing in the mid-teens. Even that is some kind of an improvement compared to the trajectory we were seeing last few months. Q: If the trade deficit does narrow then how much would be the pressure on the Current Account Deficit (CAD)? A: The CAD also can look somewhat better compared to the last year. We are talking about a number of around 3.9 percent of Gross Domestic Product (GDP) which is in the range of around USD 80 billion for the whole year. Now that gold prices and oil prices are softening, on these two aspects we can actually see some more benefit. The number can go down actually a little more. Increasingly there is more pressure from the financing side which remains a real concern. Q: What is your range on the rupee? What would your range be for the rest of 2013? A: The more important factor here is what kind of policy measures we get to see in at this juncture. Left to itself there will be a lot of pressure on rupee, because most of the EM currencies are facing pressure and rupee is possibly facing the bigger current account financing gap. We are still expecting some significant policy initiative on the part of government and the key point here is initiation of some kind of chunky inflows through Non-Resident Indian (NRI) deposits for NRI bonds. That can actually be a big relief and provide some kind of support to the Indian Rupees (INR). So, we are still hoping for that. If that comes we actually get to see some kind of pullback in INR at least in the near-term. But, if that doesn’t come, it remains a big pressure on INR. So, it depends critically on that particular factor. Q: For today's gold import number is it purely seasonal in nature or do you think even despite the post-wedding season dip it is still much lower than what economists were expecting? A: I think there are three factors. The two smaller factors in my view is the seasonal factor and the imposition of higher import duties, but the bigger factor in my view is the fall in gold price. Ultimately if you see gold import data, that number has changed dramatically over the course of the last two years. From around USD 30 billion odd it has gone to around USD 55-60 billion odd. So, a lot of it is actually speculative demand. Till the time prices keep going up you see people do not mind paying the higher import duty in expectation of higher return. However, when prices keep tumbling they actually are a lot more hesitant and import can actually take a bit of hit.