BofA-ML cuts FY14 CAD forecast to 3.2% from 4%
New Delhi: Bank of America Merrill Lynch (BofA-ML) on Tuesday lowered its current account deficit (CAD) target for India for the current financial year to 3.2 percent of the GDP from 4 percent earlier.
"We have cut down the FY14 current account deficit (CAD) forecast to 3.2 per cent of GDP (from 4.0 percent earlier) by pulling down the net gold import bill by USD 7 billion to USD 30 billion," BofA-ML said in a research note today.
According to the global financial services major, though CAD at 3.2 percent of GDP is significantly lower than the 4.8 percent it registered in fiscal year 2012-13 ", it still remains higher than the 2.4 percent of GDP that we estimate as the optimal current account deficit".
BofA-ML further said that "with restrictions pulling down gold imports, the monthly trade deficit has come off to USD 10-12 billion since June".
Moreover, the recent forex measures are likely to add a net USD 5 billion to the reserves, it added.
According to official figure, high imports of gold and oil pushed CAD to 4.9 percent of GDP at USD 21.8 billion in the April-June quarter of this fiscal.
CAD, the difference between inflow and outflow of foreign exchange, had declined to 3.6 percent in the January-March quarter after touching a record high of 6.5 percent in the October-December quarter.
The government plans to bring down CAD to 3.7 percent or USD 70 billion in the 2013-14 fiscal, from 4.8 percent or USD 88.2 billion in 2012-13.
Gold imports increased by USD 7.3 billion in the first quarter of current fiscal. The imports stood at about 335 tonnes in the April-June quarter.
The initiatives taken by the government and the RBI to contain import of gold and encourage flow of foreign funds into the country is likely to ease pressure on CAD in the coming quarters.
High CAD has put pressure on Indian currency, which touched a low of 68.86 to a dollar on August 28. It is currently hovering over the Rs 62/US dollar level.