Trade deficit at seven-month high as gold imports surge
NEW DELHI | Mon Jun 17, 2013 8:59pm IST
Trade deficit at seven-month high as gold imports surge | Reuters
(Reuters) - India's trade deficit widened to a seven-month high in May as gold imports surged, provisional data showed on Monday, but economists expect newly announced measures to dampen demand for the precious metal in coming months and narrow the shortfall.
A nearly 90 percent annual jump in gold and silver imports saw the trade deficit rise to $20.14 billion last month from $17.8 billion in April.
The rise in gold import growth was slower than an annual 138 percent surge in April.
A combination of sliding global prices and regional festivals in India that traditionally increase demand for gold as gifts prompted frenzied buying in April and May. A similar pattern was seen in the world's other major bullion buyer, China.
This robust retail demand has become a major headache for Indian policymakers who have announced a slew of measures to try to narrow the current account deficit, which hit an all-time high of 6.7 percent of gross domestic product (GDP) in the December quarter.
India, the world's biggest buyer of the metal, hiked the import duty on gold to 8 percent earlier in the month from 6 percent. The central bank has also sought to curb gold imports by banks and non-banks.
"We expect gold demand and, hence, imports to be significantly lower in June, and possibly remain low in coming months," Barclays Capital said in a note after Monday's data.
"The widening in May might mark a near-term high for the trade deficit, and we think it could narrow significantly in June."
India has been struggling to control its current account deficit, which has exacerbated the fall of the rupee against the dollar in the recent global sell-off in emerging currencies.
The sharp depreciation in the rupee has also not helped Indian exports of value-added goods such as jewellery and pharmaceutical drugs.
Merchandise exports fell 1.1 percent from a year earlier to $24.51 billion, the first annual fall in five months, Monday's trade ministry data showed.
The sector makes up about 15 percent of the India's economy, which grew at its weakest pace in a decade in the fiscal year that ended in March.
Annual imports, meanwhile, rose about 7 percent in May to $44.65 billion, the trade ministry said.
The Reserve Bank of India left interest rates steady on Monday, warning of upside risks to inflation due to the weaker rupee and stressing the need to reduce the country's bloated current account gap to a sustainable level
Reserve Bank leaves rates unchanged; inflation risks weigh as rupee sags
Reserve Bank leaves rates unchanged; inflation risks weigh as rupee sags | Reuters
MUMBAI | Mon Jun 17, 2013 3:49pm IST
(Reuters) - The Reserve Bank of India kept interest rates unchanged on Monday as expected after cutting them in each of its previous three policy reviews, warning of upward risks to inflation as the rupee is among the hardest hit amid a global emerging markets sell-off.
The rupee touched an all-time low of 58.98 to the dollar last week as investors worried about India's record-high current account deficit and were unimpressed by government efforts to boost investment.
The RBI said food prices and the falling currency pose inflationary risks, and also called for vigilance over global economic uncertainty, citing the risks of a reversal of capital flows like the one that has roiled emerging markets in recent weeks.
Last week, Indonesia responded to outflows and market volatility by unexpectedly raising interest rates - the first Asian central bank to do so since 2011 - in a bid to support its currency, while Brazil said it would scrap a tax on foreign exchange derivatives as the real weakened.
Other major developing countries with large foreign financing needs such as South Africa and Poland are also seen at risk.
"The RBI was slightly hawkish but with the rupee under pressure to weaken, the tone was appropriate," said Suresh Kumar Ramanathan, head of regional interest rates and FX strategy at CIMB in Kuala Lumpur.
The current account deficit hit 5.4 percent of GDP in the April-December period, exacerbating pressure on the rupee.
"As long the rupee is under pressure, RBI will hesitate to ease anytime soon," Ramanathan said.
The Indian central bank left its policy repo rate unchanged at 7.25 percent and kept the cash reserve ratio (CRR), or the share of deposits banks must keep with the central bank, steady at 4.00 percent, despite some signs of moderating inflation in recent months.
"It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth," the RBI said in a statement.
Indian markets were little affected by the policy decision. The 10-year bond yield briefly fell, while the Sensex extended losses to trade down 0.4 percent. The rupee was trading largely unchanged from pre-statement levels, at around 57.80/81 per dollar, but still down more than 4 percent for the year to date.
Still, economists said there remains room for moderate policy easing in coming months.
"What the RBI is looking at is not just a couple of months of improving inflation but something that is much more lasting," said Rajeev Malik, senior economist at CLSA in Singapore, who expected a rate cut in the July policy review but none thereafter in the near term.
PRICE PRESSURES LOOM
A Reuters poll released on Thursday showed 28 of 38 analysts expected the RBI to hold the repo rate steady and 30 of 34 saw the CRR unchanged.
The RBI left rates on hold despite headline wholesale price index inflation that fell to 4.7 percent in May, within its comfort zone, and further signs of economic weakness.
The economy expanded by just 5 percent in the fiscal year that ended in March, its weakest in a decade.
Trade deficit in May widened to $20.1 billion from $17.8 billion a month ago, a trade ministry official said on Monday, amid high imports of cheaper gold, increasing pressure on the current account balance.
Imports rose about 7 percent from a year earlier, while exports fell 1.1 percent, the first annual fall in five months.
While noting that inflation had eased, the central bank warned of looming price pressures.
"Upside pressures on the way forward from the pass-through of rupee depreciation, recent increases in administered prices and persisting imbalances, especially relating to food, pose risks of second-round effects," the RBI said.
