India’s trade deficit hitting 5-year high is bad news for the Rupee

By: | Published: July 14, 2018 11:37 AM

India’s trade deficit widened the most in five years as oil prices jumped, setting the stage for renewed pressure on the rupee, Asia’s worst-performing currency.

India, trade deficit, Rupee, indian rupee, currency, current-account deficit, worst-performing currencyThe rupee plunged to a record 69.0925 against the dollar last month.

India’s trade deficit widened the most in five years as oil prices jumped, setting the stage for renewed pressure on the rupee, Asia’s worst-performing currency. Government data on Friday showed trade deficit at $16.6 billion in June, well above Bloomberg forecast of $14.4 billion and higher than the $14.6 billion gap in May. The June trade deficit was the widest since the $19.1 billion gap reported in May 2013.

Oil imports in June were at $12.73 billion, up 57 percent from a year ago. Overall imports rose 21.3 percent to $44.3 billion while exports lagged, growing at 17.6 percent to $27.7 billion.

The data will have an adverse impact on India’s current-account deficit, already strained by slowing foreign inflows and high oil prices, and will add to weakness in the rupee. The rupee plunged to a record 69.0925 against the dollar last month. The currency has since gained and was at 68.53 as of Friday.

“It is the import bill that’s worrisome,” said N.R. Bhanumurthy, an economist at the Delhi-based National Institute for Public Finance and Policy. “It is only going to rise further as oil prices climb and the markets continue to realign thanks to the U.S. trade wars. So the expectation is that the rupee will only weaken further.”

The nation’s current account gap is expected to widen to 2.4 percent of gross domestic product in the financial year to March 2019, from 1.9 percent in the October-December period.

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