'India current account deficit at record'
Economists with Nomura said in a research note they expect the current account deficit to be at an all-time high of 4.9 percent of gross domestic product in July-September, surpassing its previous high of 4.5 percent in the March quarter.
However, in the April-June period, the current account deficit had narrowed to 3.9 percent of GDP at $16.55 billion.
Foreign investors who had pumped in about $12.6 billion in the March quarter turned cautious and dollar inflows came down during April-June following a deteriorating trade balance, slowing economic growth and an environment of policy inaction.
Since July, foreign investors have brought in $10.6 billion, of which about $8 billion came in after the new Finance Minister Palaniappan Chidambaram made a series of announcements to liberalise the economy and kick-start reforms.
A surge in portfolio inflows due to recent reforms has ensured that net capital inflows are enough to finance the widening deficit, Nomura said.
However, with the current account deficit at a record high, we worry the INR remains susceptible to a sudden reversal of flows and note that the recent real effective exchange rate appreciation could worsen the underlying imbalance.
The rupee rose to a near six-month high of 51.32 to the dollar earlier in October mainly on the back of reform moves by the government
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