Increasing trade deficit tendency to push rupee further: sharp ratings

Acuit Ratings Expects Higher Trading Deficit Rupees to $ 78 Per Dollar

India’s merchandise trade deficit rose nearly a third to $ 20.11 billion a year in April, even as exports rose about 31 percent to a new high of $ 40.19 billion, offset by a rise in imports by about 31 percent to $ 60.3 billion.

The growing trade deficit trend will further weigh on the rupee, which repeatedly hit new record lows last week, according to Acuité Ratings.

On May 9, Monday, the rupee closed at a record low – at that time – of 77.44 against the dollar and during the session it exceeded 77.50 per dollar at various times to repeatedly break its lifelong intra-day lows.

The currency ended at a new overall low of 77.50 on Thursday after reaching a fresh intra-day weak level of 77.63 against the US currency.

On Friday, the currency recovered slightly to end at 77.31 as the RBI intervened in the open market to stem losses. The foreign exchange (forex) market in India was closed on Monday due to the Buddha Purnima holiday. The currency crossed 77 against the dollar for the first time ever in March.

But if imports continue to exceed exports, based on the trend in recent months and the latest expectations, the risks to the rupee are more to the detriment.

“The expansion of trade deficit in April-22 is in line with seasonal trends. In addition, the trade deficit has widened due to the higher petroleum trade deficit, a manifestation of the sharp acceleration in crude oil prices caused by the Russia-Ukraine conflict For FY23 goes Acuité continue to project the current account deficit to increase to $ 85 billion from an estimated level of $ 44 billion, ”analysts at Acuité Ratings noted.

“Higher trade and deficit expectations on the current account, apart from strong capital outflows due to rate hikes in developed economies, have put pressure on the rupee, which has already exceeded the INR / USD 77.0 notch and may soon reach 78.0,” analysts said. noted at Acuité. Ratings.

The rupee’s slump was wide and deep, driven by capital outflows from emerging markets, as Russia’s attack on Ukraine and the resulting Western sanctions in turn further disrupted supply chains – leading to a surge in commodity prices and runaway inflation worldwide.

This inflation surge has pushed most major central banks on a hyper-hawkish path, and investors have sought safety due to fears about global growth and protection in the US dollar.

On Monday, the greenback started the week just after a 20-year high against peers.

Investors flocked to safe-haven currency over concerns about the US Federal Reserve’s ability to curb inflation without causing a recession, coupled with concerns about slowing growth due to the Ukraine crisis and China’s economic consequences zero-COVID-19 policy.

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