CAD will fall sharply in Q2, aid in rupee stability: Rating co
Mumbai: The trade deficit narrowing to a 30-month low in September augurs well for current account deficit (CAD) and it would also ensure rupee stability, rating agencies said Wednesday.
"CAD will fall sharply in Q2 and may be around 1 percent of GDP," India Ratings said in a note this evening after the release of the trade data earlier in the day.
Lower CAD along with the regulatory actions will help the rupee stabilise at the 59-61 levels against dollar by the end of the current fiscal, even though there may be some fluctuations in the intervening period, it said.
Without giving an expected number, its peer Crisil said, "An over USD 20 billion reduction in merchandise trade deficit in Q2 compared to Q1 suggests significant improvement in CAD for the second quarter."
Crisil said if exports continue to remain strong, as has been the case in the second quarter, it will revise downwards its FY14 CAD estimate of 3.9 percent of GDP but did not offer a number.
An 11.15 percent rise in exports and 18.1 percent decline in imports helped narrow the trade deficit to a 30- month low of USD 6.76 billion in September. This was the third straight quarter of growth in exports.
Export growth was aided by a low base, weak rupee and rising global demand, Crisil said, adding in-bound shipments were restricted due to a fall in oil and gold imports.
The agency said gold imports during the second quarter were 300 tonne lower than the one observed in the same period last year due to a series of curbs imposed by Government.
CAD, the difference between inflow and outflow of foreign exchange, had stood at an alarming 4.9 percent of GDP in Q1. This was one of the prime reasons for the heavy fall in the value of rupee, which has since recovered.
Finance Minister P Chidambaram and Reserve Bank Governor Raghuram Rajan have been exuding confidence that CAD will come in under USD 70 billion, or around 3.8 percent of GDP, for the ongoing fiscal and the Government will not have much trouble financing it.