India's Current Account Deficit Holds Steady as Rupee Faces Pressure
Investing.com -- According to data released by the Reserve Bank of India (RBI) on Friday, India's current account deficit remained largely unchanged in the July-September quarter compared to the previous quarter. The deficit, which is the broadest measure of goods and services trade, stood at $11.2 billion for the quarter, or 1.2% of the country's Gross Domestic Product (GDP). This figure is close to the revised $11.3 billion deficit reported for the April-June period, initially reported as a $9.7 billion deficit.
The RBI noted that strong domestic demand, particularly for gold, contributed to an increase in the country's import bill during this period. This is a typical trend, as spending usually rises in preparation for the Diwali festival season. The trade deficit unexpectedly widened in August due to the slowdown in global demand affecting exports. On the other hand, gold imports saw a significant rise following the government's reduction of the tax on metals from 15% to 6% in July.
The central bank also warned that a significant widening of the current account deficit is expected in the October-December quarter. This warning follows a record level in India's trade deficit in November, driven by a fourfold increase in gold imports. However, there are concerns that the quantity of gold imported for the month may have been overestimated. Efforts to reconcile the data are currently ongoing.
The expanding deficit is putting additional pressure on the Indian rupee, which fell to a record low of 85.8150 against the US dollar on Friday. The RBI's ongoing efforts to halt the rupee's depreciation have resulted in a decline of more than $50 billion in the country's foreign reserves since their peak of around $705 billion in September.
According to RBI data, the trade deficit in the July-September quarter increased to $75.3 billion from $64.5 billion in the same period last year. Meanwhile, net services exports rose to $44.5 billion in the quarter, up from $39.9 billion in the same period last year.