Signs that India's current account deficit could get worse

It recently peaked to 5.4% of GDP in 2Q.

According to DBS, mixed macro signals will keep RBI in a tight spot in the coming quarter. While WPI inflation fell in January, worrying signs emerge on the current account front.

Merchandise trade data for January released earlier in the week offered little respite to policy doves as the monthly trade deficit jumped to USD 20bn, the second highest on record.

Here's more from DBS:

The 12-month moving average hit a high of USD 16.7bn. Signs are that the October-December (Q3 of FY12/13) current account deficit could deteriorate further after spiking to a record 5.4% of GDP in Q2.

With the merchandise trade balance in red by a bigger margin in Q3 and sub-6% growth pencilled in, the chance of a 4.5%-5.0% CA deficit is on the rise. This sets the ground for a jump in the annual CAD to 4.5%-4.8% from 4.2% in FY12.