The Indian economy is likely to have improved in the second quarter with GDP printing in at -7.8 percent as against 24 percent contraction in the June quarter, says a BofA report.
The government will release the GDP data by the end of the month. House economists at the Wall Street brokerage Indranil Sengupta and Aastha Gudwani further said the economy is likely to close this fiscal year with a current account surplus of 1 per cent given the massive contraction in imports.
They have also retained their earlier forecast of 7.5 percent GDP contraction as against 11 per cent earlier for 2020-21 which is much better than the average forecast of 9.5-11 per cent contraction by other analysts.
We expect the September quarter growth to be at -7.8 per cent, better than -23.9 per cent in the June quarter. We also retain our previous forecast of -7.5 per cent growth in FY21, they said in a report on Wednesday.
Separately, they expect the Reserve Bank to let the rupee fall to Rs 75-76 against the dollar and also buying net USD 77 billion this fiscal. So far, the central bank has snapped up USD 66.3 billion.
We continue to expect the RBI to follow its asymmetric policy of buying forex when the dollar weakens and letting the rupee drift towards Rs 75 to a dollar if it strengthens under the new US administration, which is expected to unveil a USD 500 billion- USD 1 trillion fiscal stimulus in February.
In case of a greater-than-expected stimulus, the RBI will likely buy up risk-on foreign portfolio investment flows to add to the forex reserves. In case of a disappointment leading to a risk-off in markets, we see the RBI letting the rupee weaken to Rs 75-76, the report said.
It can be noted that the policy of trying to allow the rupee to appreciate at the cost of forex reserves in 2009-11 finally led to massive depreciation in 2011, 2013 and 2018.
For the first first time in the last ten years, the RBI has been able to rebuild adequate forex reserves, which has been on an upward trajectory for many months now and has hit USD 572.771 billion in the week to November 13.
Trade deficit jumped to USD 8.7 billion in October from USD 2.7 billion in September as exports fell again, led by oil. Imports, however, continued to decline, but at a slower pace, as both gold and non-oil, non-gold imports were relatively better.
We project the current account surplus at USD 13 billion in Q2, down from USD 19.8 billion in Q1, helping FY21 close with a 1 per cent surplus, the report said, adding 2021-22 will again see a current account deficit of 0.5 per cent of GDP provided the crude averaged at USD 50 a barrel.