NEW DELHI- India’s currency firmed and shares rose Thursday after a marked improvement in the current account deficit in the last quarter, a change one analyst called “heartening”.
The current account deficit is the broadest measure of trade, and its rise to a record 4.8 percent of gross domestic product last year prompted warnings that India could lose its prized investment-grade credit rating.
The deficit slid to 0.9 percent of GDP or $4.2 billion in the three months to December, from 6.5 percent of GDP or $31.9 billion in the same period a year earlier.
“It’s quite an achievement and testament to the concerted efforts of the Reserve Bank of India and the government to rein in the deficit,” Leif Eskesen, HSBC’s India economist, said of the data released late Wednesday after markets closed.
The Indian currency gained a third of a rupee to 61.41 rupees to the dollar from the previous day’s level, buoyed by the figures. Shares also gained with India’s benchmark Sensex rising half a percent to 21,380.63 points.
Last year’s ballooning of the current account deficit had raised worries about a balance of payments crunch amid concerns that India was badly exposed to changes in US monetary policy.
The rupee was one of several emerging-market currencies hit last year by foreign fund outflows, after the US Federal Reserve said last May it would start winding down its stimulus scheme, a process it began in December.
The rupee has gained 10 percent since it plunged to a record low of 68.8 to the dollar last August
The dive in the current account deficit was driven by a sharp decrease in the trade deficit thanks to measures to combat gold imports and stronger exports helped by a weaker rupee, the Reserve Bank of India said.
The new data was released one month ahead of schedule after the left-leaning Congress-led government announced general elections that kick off in stages starting April 7.
Finance Minister P. Chidambaram said last month the current account deficit for the financial year to the end of March would be just $45 billion or around 4.5 percent of GDP — well below a record $88 billion in 2012-13.
Goldman Sachs analyst Tushar Poddar called the numbers “heartening” and forecast the improvement would be “sustained due to weak domestic demand and improving export demand”.
Gold imports in the last quarter slid to $3.1 billion from $17.8 billion a year earlier after the government slapped controls on precious metal imports to cut the deficit.
Non-oil and non-gold imports slid by eight percent year-on-year, reflecting sluggish demand in an economy growing at a decade-low of just under five percent.