Slowdown in exports vis-à-vis imports has started to weigh on trade deficit in a more emphatic manner
Download ReportJul-22 Merchandise Trade - Exports coming under pressure
India’s merchandise trade deficit widened to a fresh record high of USD 31.0 bn in Jul-22 vs. USD 26.2 bn in Jun-22. Slowdown in exports vis-à-vis imports has started to weigh on trade deficit in a more emphatic manner. The impact of accelerated tightening in monetary policy across the globe, COVID resurgence in few countries, and heightened geopolitical uncertainty seems to be playing out somewhat earlier than envisaged. The combination of multispeed post pandemic global recovery along with still somewhat elevated commodity prices would continue to put pressure on India’s current account deficit. As such, we revise higher our expectation for FY23 CAD to USD 130 bn from USD 105 bn earlier. As a result, our FY23 BoP projection now stands adjusted to a deficit of USD 60 bn vis-à-vis a deficit of USD 35 bn earlier. Financial implications of a large BoP deficit could maintain support for front loading of monetary policy response by the RBI. We continue to expect the MPC to opt for a 40-50 bps hike in repo rate in the upcoming policy review on Aug 5th.