Current account deficit may widen to 3% in Apr-Jun: Nomura

The country's current account deficit is likely to widen to 3 per cent in the second quarter of 2017 due to sharp deterioration in trade deficit, says a report.

In the quarter ended March or first quarter of 2017, current account deficit widened to USD 3.4 billion, or 0.6 per cent of gross domestic product (GDP).

"We estimate that the current account deficit widened to a four-year high of 3 per cent of GDP in the second quarter from a low of 0.6 per cent in first quarter of 2017," Nomura said in a report here today.

The widening in current account deficit will be likely on account of a sharp deterioration in the trade deficit which according to monthly customs data widened to 6.9 per cent of GDP in the quarter ended June from 4.5 per cent in the quarter ended March.

The report said despite the wider current account deficit, financing is not a concern.

It estimates that net capital inflows stood at 4-4.5 per cent of GDP in the period, led by portfolio equity and FDI inflows, resulting in a positive (1-1.5 per cent of GDP) balance of payments surplus.

The report said over the last two fiscal years, low commodity prices has driven the current account deficit to narrow to around 1 per cent of GDP.

With commodity prices marginally higher and a cyclical recovery expected in coming quarters, the report expects the current account deficit to widen to a steady state of around 1.5-2 per cent of GDP.

"But we see this as a sustainable level given high real rates and ongoing economic reforms, which should continue to attract FDI inflows," the Japanese brokerage said.