Indian Rupee Climbs as Trade Deficit Narrows to 15-Month Low By Tushar Dhara - Jul 13, 2012

Indian exports fell for the third time in four months in June, while a trade deficit that has pressured the rupee was the narrowest in more than a year as imports slid, government figures showed. The currency rose.

Merchandise shipments fell 5.45 percent from a year earlier to $25.06 billion, Director General of Foreign Trade Anup Pujari said at a briefing in New Delhi today. Imports slipped 13.46 percent to $35.3 billion, leaving a trade deficit of $10.3 billion, he said. The data are provisional.

India’s overseas sales of items such as engineering goods and cars have struggled this year as Europe’s debt crisis, slower Chinese growth and elevated unemployment in the U.S. crimp demand for Asian products. The rupee is down 19 percent against the dollar in the past 12 months, after being pressured by a trade shortfall that swelled to a record last fiscal year.

“Exports will stay weak till at least October,” said Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd. in Mumbai. “But, on the other hand, the shrinking trade deficit is great news for the rupee,” which will appreciate to 54 per dollar by end-October and 48 by March 2013, Hajra said.

The rupee strengthened 1 percent to 55.3650 as of 3:42 p.m. in Mumbai. The benchmark BSE India Sensitive Index of stocks was little changed.

Narrower Deficit

The contraction in imports was the largest since 2009, while the trade deficit was the smallest since March 2011, based on historical data the government released on April 19, official monthly trade statements and today’s release.

The trade gap in the fiscal year that started April 1 may shrink from the level in 2011-2012, Pujari said. The deficit in the 12 months ended March was an unprecedented $184.9 billion. Exports are likely to pick up in a couple of months, Commerce Secretary S.R. Rao said at the same briefing.

Slowing economic growth, budget and trade shortfalls and uncertainty over tax changes have added pressure on Prime Minister Manmohan Singh’s government to overhaul policies and support the expansion in Asia’s third-largest economy.

India doubled the import tax on gold bars and coins and platinum to 4 percent from April to try and pare the trade imbalance, and last month said it will prolong a policy of providing subsidized credit for some exporters through the current fiscal year.

The Reserve Bank of India left interest rates unchanged in June after a cut in April, and has signaled price pressures may limit scope to join nations from China to South Korea in easing monetary policy this month.

Indian inflation probably accelerated to 7.61 percent in June from 7.55 percent in May, according to the median estimate in a Bloomberg News survey ahead of a report next week.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.