CAD may be curtailed to 2.3% of GDP this fiscal: Citibank

Citibank economists expect trade deficit for the current fiscal (FY14) to be contained at $156 billion ($194 billion in FY13), thus resulting in the current account deficit (CAD) coming in at $42 billion or 2.3 per cent of GDP.

In a note to clients, they said that while the likely reduction in CAD has been driven by a compression of gold/non-essential imports, they expect the trend to persist as the resumption of iron ore exports and potentially lower coal/metal scrap imports should partially offset a pick up in gold and/or capital goods.

India’s trade deficit numbers came in at $10 billion in December in keeping with the average for the past five months. For the April-December period, exports rose 6 per cent to $230 billion while imports were down 6.6 per cent to $340 billion, leaving a trade deficit of $110 billion ($147 billion in the comparable period last year).

Rupee outlook On the outlook for the currency, Citi’s economists are of the view that “a continued up-tick in US treasury yields could put some pressure on high-yielding currencies such as the rupee.”

They believe that the narrowing of CAD to below 3 per cent of GDP and high forex reserves would provide structural strength to the rupee against emerging market volatility. They maintain their view that USD/INR is likely to trade in the 60-63 range in the next few months.

vageesh.ns@thehindu.co.in