India Current Account Unexpectedly in Deficit in Blow to Rupee

(Bloomberg) -- India’s current account unexpectedly stayed in a deficit, denying support to the rupee before the U.S. Federal Reserve reviews its monetary policy.

Key Points

• The current account recorded a shortfall of $0.3 billion in the April-June quarter, or 0.1 percent of gross domestic product, the Reserve Bank of India said in a statement on Wednesday
• That compares with a median $2.7 billion surplus predicted in a Bloomberg survey of 17 economists
• The gap is largely unchanged from the previous quarter, though narrower than the $6.1 billion deficit in April-June 2015 as the trade deficit shrank

Big Picture

A weaker external profile would pressure Asia’s third-worst performing currency, amid a potential rise in global volatility after the Bank of Japan shifted the focus of its monetary stimulus hours before the Fed concludes its meeting on Wednesday. Reserve Bank of India Governor Urjit Patel has boosted foreign-currency holdings to a record to prepare for about $20 billion in outflows as emergency swaps taken in 2013 mature this year.

Economist Takeaways

• "Significantly, FDI receipts have almost halved, which is a concern," Madan Sabnavis, an economist at Care Ratings Ltd. wrote in a report. Any increase in U.S. rates would damp foreign purchases of Indian stocks and bonds, as well as make overseas loans less attractive, he said.

The Details

• The trade deficit shrank to $23.8 billion in April-June from $34.2 billion a year earlier, as imports dropped
• However revenue from service exports, remittances and foreign direct income declined during the period; bank deposits by Indians living abroad also fell
• Portfolio investment recorded an inflow of $2.1 billion versus an outflow a year earlier