01 July 2012

Balance of Payments - CAD at all time high: Edelweiss, PDF Link



BoP, in Q4FY12, showed a deficit (of ~USD5.7bn) for the second straight quarter, as capital flows (USD16bn, better than Q3) were inadequate to fund the widening CAD (~USD21.7bn, 4.5% of GDP). Trade deficit, which typically improves in Q4 due to year-end seasonality, remained elevated on account of higher crude and gold imports and only marginal improvement in exports. Invisibles, too, showed only a slight improvement. On the capital account side, recovery in global risk appetite (post ECBs LTRO) was well reflected in the sharp rise in portfolio flows, although debt-related flows remained weak, reflecting ongoing deleveraging by EU banks.  
For FY12, CAD stood at an all-time high of 4.2% of GDP, which is clearly the vulnerability zone. However, as stated earlier, we see that factors are falling into place (declining crude prices, slowing gold imports and undervalued INR), which will pave the way for CADnarrowing to 3.2-3.3% of GDP in FY13.  
Regards,


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