India’s trade deficit jumped nearly a third to $20.11 billion in April year-on-year, even as exports soared about 31 percent to a new all-time high of $40.19 billion, which was offset by an increase of imports by about 31 percent to $60.3 billion.
That increasing trend on the trade deficit will further weigh on the rupee, which repeatedly hit new record lows last week, according to Acuité Ratings.
On Monday, May 9, the rupee closed at a record low – at the time – of 77.44 against the dollar and crossed 77.50 per dollar during the session at various times, repeatedly breaking its intra-day lows throughout its lifetime. .
On Thursday, the currency ended at a new all-time low of 77.50 after hitting a new intra-day weak level of 77.63 against the US currency.
On Friday, the currency recovered slightly to finish at 77.31 as the RBI intervened in the open market to contain losses. The foreign exchange (forex) market in India was closed on Monday for the Buddha Purnima holiday. Earlier in March, the currency had surged through 77 against the dollar for the first time earlier in March.
But if imports continue to outpace exports, based on the trend of recent months and latest expectations, the risks tend to lean more downward for the rupee.
“The expansion of the trade deficit in April and April 22 is in line with seasonality. In addition, the trade deficit widened due to the higher oil trade deficit, a manifestation of the sharp acceleration in crude oil prices caused by the conflict between Russia and Ukraine For FY23, Acuité is expected to continue expanding its current account deficit to $85 billion from an estimated level of $44 billion,” analysts at Acuité Ratings said.
Higher trade and deficit expectations in the current account, aside from strong capital outflows due to interest rate hikes in developed economies, have put pressure on the rupee, which has already surpassed INR/USD 77.0 and may soon reach 78.0 Acuite analysts said. Ratings.
The slump in the rupee has been broad and deep, driven by capital outflows from emerging markets, as the Russian attack on Ukraine and ensuing Western sanctions have further disrupted supply chains – leading to a surge in commodity prices and runaway inflation worldwide.
That rise in inflation has pushed most major central banks onto a hyper-hawkish path, and investors have sought safety over fears of global growth and sheltered in the US dollar.
On Monday, the greenback started the week just short of a 20-year high against peers.
Investors have flocked to the safe-haven currency over concerns about the US Federal Reserve’s ability to contain inflation without triggering a recession, along with concerns about slowing growth due to the crisis in Ukraine and the economic effects of China’s Zero-COVID-19 Policy.