India: A 3-year high trade deficit - ING
|According to Prakash Sakpal, Economist at ING, a 3-year high trade deficit raises the risk of India’s twin-deficits, which they expect to sustain upward pressure on the government bond yields and the USD/INR.
Key Quotes
“In another dent to investor sentiment toward the INR, trade deficit hit a 3-year high of US$14bn in October (INGF: US$12.9bn, consensus: US$10.5bn, prior US$9bn). September’s outsized 20% MoM bump in exports was retraced, pushing YoY growth to -1.1% from 25.7% in September, the first negative since July 2016, while firmer global crude oil prices continued to swell imports. Oil imports surged 30% YoY, but a slowdown in non-oil imports pulled total import growth down to 7.6% from 18.1%.”
“Data put the year-to-date FY17/18 (Apr-Mar) deficit at US$86bn, or US$31bn wider on the year. Widening trade deficit implies net exports have been a drag on GDP growth in the current financial year. This also implies a wider current account deficit. The 2014 oil price crash was associated with significant improvements in both the current account and fiscal balances over the last two years. The trend is reversing. We consider our forecast of widening in the current account deficit to 1.5% of GDP in FY17/18 from 0.7% in FY16/17 subject to upside risk. At the same time, the government’s efforts to arrest economic slowdown will likely to cause overshooting of the fiscal deficit above the 3.2% official target for FY17/18.”
“We expect rising inflation and re-emergence of the twin-deficits risk to continue to pressure government bond yields and the USD/INR higher.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.