India's Trade Gap Blowout Gives Hope to Hibernating Rupee Bears
Rupee fell to the lowest in almost 3 weeks amid worries that worsening terms of trade will drag current a/c deficit.
(Bloomberg) -- The blowout in India’s trade gap to its worst in three years and higher prices of crude, the nation’s biggest import item, are giving ammunition to rupee bears -- many of whom have been hibernating for some time.
The rupee fell to the lowest in almost three weeks early Wednesday, despite foreign flows into India’s record-breaking stock market and a weak U.S. dollar, amid worries that worsening terms of trade would be a drag on the current-account deficit. That was a quick reversal for a currency that made a strong start to 2018, reaching its highest level since April 2015 just earlier this month. It rose more than 6 percent in 2017, the first annual gain since 2010.
“A larger commodity bill -- mainly oil -- could deteriorate the trade balance anew,” said Radhika Rao, an economist at DBS Bank Ltd. in Singapore.
“December’s numbers also rekindle concerns over the current-account balance,” she said. While foreign-exchange reserves at a record $411 billion were enough for now, a wider current account gap, along with risks of fiscal slippages and above-target inflation, all point to a weaker macroeconomic backdrop, and could hit foreign inflows and the currency, she said, adding that DBS expects the dollar to strengthen.
The rupee traded little changed at 64.05 per dollar as of 12:26 p.m. in Mumbai. It dropped 0.9 percent on Tuesday.
To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net.
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Shikhar Balwani
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