India released figures showing a narrower-than-estimated current-account deficit a day earlier than expected, sparking a climb in the rupee from a record low.
The shortfall was $18.1 billion in January through March, compared with a revised $31.9 billion in the previous quarter, the Reserve Bank of India said today. The median of 14 estimates in a Bloomberg News survey was for a $21 billion gap. The deficit last quarter was 3.6 percent of gross domestic product, from an unprecedented 6.7 percent of GDP in October to December.
The central bank usually publishes the figures on the last working day of the quarter and the surprise release is probably aimed at calming nerves after the rupee sank to an all-time low yesterday, Yes Bank Ltd. said. The currency has tumbled as the prospect of reduced U.S. monetary stimulus exposes emerging nations from India to Brazil to the risk of capital outflows.
“This is a brief reprieve,” said Shubhada Rao, chief economist at Yes Bank in Mumbai. “The deficit may widen again this quarter.”
The rupee strengthened 0.9 percent to 60.2 per dollar at the close in Mumbai. It is down 8.7 percent in 2013, the most after the yen in a basket of 11 Asian currencies tracked by Bloomberg. The S&P BSE Sensex index rose 1.8 percent, while the yield on the 7.16 percent government bond due May 2023 fell to 7.56 percent from 7.58 percent yesterday.
For the 12 months ended March, the deficit widened to $87.8 billion, or 4.8 percent of GDP, from $78.2 billion in 2011-2012, or 4.2 percent of GDP, today’s statement showed.
The current account is the broadest measure of trade, tracking goods, services and investment income. The central bank estimates the sustainable level of the deficit at 2.5 percent of GDP and has said it’s the biggest risk to the economy.
The “non-disruptive” financing of the gap is a major challenge, the Reserve Bank said in a biannual report on financial stability released today. Overall economic risks facing the nation’s economy appear to have increased since the last report in December, it said.
India has increased taxes on gold imports twice this year to try and rein in the imbalance by deterring purchases of the metal. The nation is the world’s biggest consumer of bullion, for uses ranging from wedding jewelry to a store of value amid elevated consumer-price inflation.
The higher levies are part of a policy push by Prime Minister Manmohan Singh’s government since September to revive an economy that expanded last fiscal year at the weakest pace in a decade. Export growth last quarter assisted efforts to pare the trade gap.
Foreign direct investment in India fell the most in more than a decade in 2012-2013, increasing reliance on stock and bond inflows to fund the current-account shortfall.
The government is considering easing restrictions on foreign direct investment in a range of industries to woo funds, according to Finance Minister Palaniappan Chidambaram.
While net capital inflows moderated in January through March, they were “more than adequate” to finance the current-account gap, the Reserve Bank said today.
“We expect lower capital inflows to continue to pressurize the balance of payments,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai.
The monetary authority left interest rates unchanged this month, snapping three straight reductions, and said inflation, economic growth and the balance of payments will guide policy.
The plunge in the rupee threatens to stoke import costs and reignite price pressures.
Consumer prices rose 9.31 percent in May from a year earlier, the second-fastest pace in the Group of 20 major economies. The wholesale-price index climbed 4.7 percent, a 43-month low.
Asia’s third-largest economy expanded 5 percent last fiscal year, less than the 10-year average of about 8 percent.