Rupee to be under pressure next week on high CAD

Updated: Saturday, March 30, 2013, 12:27 [IST]

The rupee is likely to be under some pressure in early trade next week, after the current account deficit (CAD) came in at a record high on Thursday. There was no forex trade on Friday on account of Good Friday. Hence, the inter bank forex markets that re-open only on Monday are likely to react to the dismal current account deficit, which came in at 6.7 per cent of GDP. Read what is current account deficit

While the figure was expected to be ugly, analysts did not expect the figure to be as bad as 6.7 per cent. The consensus was largely in the range of 6-6.2 per cent and hence the 6.7 per cent number is certainly ugly.

The problems for the current account deficit has been the high balance of payment. "On a Balance of Payments (BoP) basis, merchandise exports did not show any significant growth in Q3 of 2012-13 as compared with a 7.6 per cent growth in Q3 of 2011-12," the central bank said. "Merchandise imports on the contrary registered a growth of 9.4 per cent, spurred largely by oil and gold imports," it added.

If we keep consuming more gold and rely more on imported oil, be rest assured the balance of payments and the CAD could deteriorate even further.

While the rupee could weaken analysts do not expect it to breach the 55 levels anytime soon, given that foreign funds have been steadily investing in the markets and bringing in lot of dollars on account of the easy liquidity conditions globally. Read what is current account deficit

However, worries over the political situation, especially the withdrawal of support by the Samajwadi party and problems on the Korean Peninsula could see the rupee deteriorate.

The Indian rupee has remained pretty stable over the last few months, but, one has to remember that the global and domestic situation look more vulnerable then ever before.

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