India's Current Account Deficit Shrinks More Than Estimated

(Bloomberg) -- India’s current account deficit narrowed more than estimated last quarter, which could help the rupee before an expected rise in interest rates by the U.S. Federal Reserve.

Key Points

• The shortfall was $7.2 billion in July-September, or 1.2 percent of gross domestic product, the Reserve Bank of India said in a statement in Mumbai on Wednesday
• That compares with a median $8.3 billion deficit projected in a Bloomberg survey of 16 economists
• The gap is smaller than the previous quarter’s revised $15 billion deficit (2.5 percent of GDP), but substantially higher than the $3.4 billion recorded in July-September 2016 as the trade deficit widened

Big Picture

While India needs steady inflows to help bridge the deficit, foreign investors have been net sellers of the nation’s stocks this month as inflation surged and factory output slowed. However, near record foreign-exchange reserves of $402 billion could support the rupee, which has risen more than 5 percent against the dollar this year. More sustainable improvement would need a recovery in exports.

Details

• Net services receipts increased to $18.4 billion, higher than the previous quarter’s $18.2 billion -- and up from the previous year -- mainly on the back of higher earnings from software services and travel, the RBI said
• Remittances were at $17.4 billion, up nearly 15 percent from the previous year; while net foreign direct investments moderated to $12.4 billion
• The goods trade deficit narrowed to $32.8 billion from $41.2 billion the previous quarter but widened from a gap of $25.6 billion in the previous year
• Net portfolio investments recorded an inflow of $2.1 billion, lower than $6.1 billion last year and $12.5 billion last quarter as foreigners sold Indian stocks

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