A pickup in services exports, including software, has resulted in India's current account deficit (CAD) narrowing considerably to $8.2 billion, or 1.6% of the gross domestic product (GDP) for the quarter ended December 2014, down from $10.1 billion (2% of GDP) as of end-September 2014. In addition to the surge in services exports, steady remittances by non-residents helped the balance of payment (BoP) surplus to nearly double to $13.2 billion from $6.9 billion in the preceding quarter.
However, the trade deficit in the October-December period widened slightly to $39.2 billion from $38.6 billion in the previous quarter as exports continued to be sluggish. Also, the CAD at end-December was almost double the $4.2 billion (0.9% of GDP) for the quarter ended December 2013. However, the narrow CAD in Q3 of previous fiscal was triggered by several measures to support the rupee.
A matter of concern on the foreign exchange front is the resurgence of gold imports during the third quarter. The quarter ended December 2014 saw net gold imports worth $11.07 billion, up from $7.6 billion in the second quarter. Another worry is the continued sluggishness in merchandise exports, which resulted in a deficit of $28.1 billion for the third quarter, marginally down from $30.9 billion in the second quarter.
This positive news on the external front comes at a time when the dollar is gaining against all major currencies including the rupee. It is widely expected that a stronger-than-expected drop in unemployment would result in interest rates rising in the United States, which would result in more capital flowing into the US.
In the third quarter of FY15, RBI added $13.2 billion to the country's foreign exchange reserves -double the $6.9 billion in the preceding quarter.The central bank has made net purchases of $12.14 billion in the spot foreign exchange market in January , which is almost double the $6.74 billion of market purchases in December 2014. The RBI buys the greenback to prevent the rupee from rising sharply . On Tuesday , the rupee closed 24 paise down against the US dollar at 62.78.
The central bank guards against an unduly strong rupee as this would worsen the trade deficit by undermining export competitiveness and boosting exports. The steady purchase of dollars by the RBI resulted in the rupee-dollar exchange rate trading in a range of 61.29 to 63.63 to the dollar in January, which saw over $5 billion of inflows in the foreign exchange market.
However, the trade deficit in the October-December period widened slightly to $39.2 billion from $38.6 billion in the previous quarter as exports continued to be sluggish. Also, the CAD at end-December was almost double the $4.2 billion (0.9% of GDP) for the quarter ended December 2013. However, the narrow CAD in Q3 of previous fiscal was triggered by several measures to support the rupee.
A matter of concern on the foreign exchange front is the resurgence of gold imports during the third quarter. The quarter ended December 2014 saw net gold imports worth $11.07 billion, up from $7.6 billion in the second quarter. Another worry is the continued sluggishness in merchandise exports, which resulted in a deficit of $28.1 billion for the third quarter, marginally down from $30.9 billion in the second quarter.
This positive news on the external front comes at a time when the dollar is gaining against all major currencies including the rupee. It is widely expected that a stronger-than-expected drop in unemployment would result in interest rates rising in the United States, which would result in more capital flowing into the US.
In the third quarter of FY15, RBI added $13.2 billion to the country's foreign exchange reserves -double the $6.9 billion in the preceding quarter.The central bank has made net purchases of $12.14 billion in the spot foreign exchange market in January , which is almost double the $6.74 billion of market purchases in December 2014. The RBI buys the greenback to prevent the rupee from rising sharply . On Tuesday , the rupee closed 24 paise down against the US dollar at 62.78.
The central bank guards against an unduly strong rupee as this would worsen the trade deficit by undermining export competitiveness and boosting exports. The steady purchase of dollars by the RBI resulted in the rupee-dollar exchange rate trading in a range of 61.29 to 63.63 to the dollar in January, which saw over $5 billion of inflows in the foreign exchange market.
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