Current-Account Deficit Widens to a Record as Machinery Imports Increase

India’s current-account deficit widened to a record last quarter as an accelerating economy boosted imports of oil and machinery.

The measure of trade and investment flows posted a $13.7 billion gap in the three months ended June 30 after a $13 billion shortfall in the previous quarter, the Reserve Bank of India said in an e-mailed statement in Mumbai today. The median forecast of 13 analysts in a Bloomberg News survey was for a $12.5 billion gap.

A widening current-account deficit may weaken the currency and halt the biggest rupee rally since May 2009, said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. India’s economy expanded 8.8 percent last quarter, the fastest pace in 2 1/2 years.

“The widening current-account deficit may have a depreciating pressure on the rupee,” said Pan, chief economist at Mumbai-based Kotak Mahindra.

The currency, which has climbed 4.7 percent this month, will drop 1.2 percent by Dec. 31, according to a Bloomberg poll.

Trading patterns also signal a possible reversal, after the rupee’s so-called relative strength index closed yesterday at 75.6, up from 37.3 at the end of last month, according to data compiled by Bloomberg. Readings above 70 indicate a currency may have risen too fast.

Trade Deficit

“The higher trade deficit combined with lower invisibles surplus resulted in the widening of the current-account deficit,” the Reserve Bank said in the statement.

Exports totaled $53.7 billion last quarter, less than the $87.9 billion of imports, widening the trade deficit to $34.2 billion, according to the statement.

Inflows from the so-called invisibles that include software export earnings and remittances were $20.5 billion last quarter, compared with $21.2 billion year ago, the statement showed. India’s capital account showed a surplus of $17.5 billion in the three months through June, compared with a $4.6 billion surplus in the year ago period, the Reserve Bank said.

The current-account deficit in the fiscal year to March is likely to be 2.9 percent of the gross domestic product, same as in the previous year, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in Mumbai today. There won’t be any difficulty in the financing of the deficit, he said.

To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net.

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