India: Twin-deficit problem seems to be resurfacing - ING

Prakash Sakpal, Economist at ING suggests that ING is forecasting a range trading in USD/INR around 65.00 over the next 12 months.

Key Quotes

“Exports surged by 25.7% YoY and imports by 18.1% in September, data over the weekend showed. It was a strongest export print in the current financial year started in April 2017, putting 1HFY18 growth at 12.0% YoY, an acceleration from -1.7% a year ago. But 25.2% 1HFY18 import growth was an even bigger positive swing from -13.2% a year ago, of which more than a fifth was oil-related. The trade balance posted a US$72.1bn deficit in 1HFY18, US$28bn wider on the year.”

“One of the twin-deficits, the fiscal deficit started thrashing Indian financial assets in September. And the other one, the current account deficit seems to be popping its head up again. At US$14.3bn in 1QFY18 the current deficit was the largest in four years and it came off the US$39.9bn customs trade deficit, which continued to widen in 2QFY18. We expect close to 1.5% of GDP current account deficit and about 4% of GDP fiscal deficit in FY2018 (cons: 1.5% and 3.6%, FY2017: 0.7% and 3.5%).”

“Better activity data last week has driven USD/INR below 65.00 (spot 64.93). We think it would take continued good economic news or a dramatic weakening in the USD for the pair to retest the August low of 63.58. We forecast range trading around 65.00 over the next 12 months.”