The steep decline in its country’s Current Account Deficit (CAD) cheered the Indian equity markets, lifting them to new life-time highs. The Indian rupee climbed to three-month highs. The lower-than expected gold import bill only helped to trim CAD. A bunch of analysts including Nomura, HSBC and BNP Paribas expect the government to eventually relax the tight gold (COMEX:GCJ14) import norms.
As per government data, the country’s CAD plunged to 0.9% of GDP during the December quarter--the lowest in four years. The gold import bill during the first three quarters totaled just $21 billion, thanks to the strict regulations on gold imports by the Union government and the Reserve Bank of India (RBI). The shrinkage of CAD was also triggered by pickup in merchandise exports. The ongoing curbs may limit the CAD for the current financial year to $25 billion, less than half of $53.8 billion during the previous year.
Analyst at Nomura Financial Services feels that lowering CAD has given some room for the government to revisit the gold import curbs. HSBC Global Research foresees all chances of relaxation of gold norms, even though it may raise the CAD to a certain extent. The firm is of the view that lower-than-expected CAD has opened a window of hope for the government to act upon.
BNP Paribas’ Asian analysts also anticipate some administrative restrictions on gold imports to be released sooner or later as the CAD figures turned out to be much less than what P. Chidambaram, Indian Finance Minister had forecast during vote-on-account speech. However it warns that lifting of norms may badly affect CAD and rupee’s stability.