StanChart lowers CAD projection to $45 bn in FY 2014

Standard Chartered Bank today substantially lowered the current account deficit projection to $45 billion from earlier estimates of $71.8 billion after trade deficit sharply declined in September.

 

India's trade deficit for September was $6.7 billion, much lower than our estimate of $10.5 billion. This was the best monthly print in the last 30 months, StanChart said in a report.

 

"The 2013-14 CAD could be close to half of its 2012-13 level after this improvement in the trade balance. Policies to address the CAD seem to have worked and investors will now have one less macro challenge to worry about in India," it said.

 

With softer trade deficit numbers for the last four months, the second quarter trade deficit has dropped to $30 billion from $50.5 billion in the first quarter, it said.

 

"We now lower it to $45 billion (2.5% of GDP) from 4% of GDP ($71.8 billion) previously. We maintain our capital-flow forecast of $65 billion for 2013-14," it said.

 

However, in light of expectation of a sharp correction in the CAD, the balance of payments (BoP) forecast is now $20.6 billion, much better than the initial BoP projection of $6.8 billion.

 

With regard to gold imports, it said, after measures to curb imports were announced in July, total gold imports for August and September fell to only about $1.5 billion. These are the lowest readings in 52 months.

 

However, gold imports may pick up as India enters the festival season in October-November. It is possible that gold imports will return to a monthly pace of $3-4 billion, it said.

 

Rupee depreciation and slow domestic growth are affecting import demand for certain capital goods.

 

For the April-August 2013 period, machinery imports and project goods imports fell 12% and 38% respectively.