India’s Q1 FY22 BoP data presents few noteworthy developments. First is the record high services trade surplus that probably received a shot in the arm in the post COVID period from a worldwide emphasis on digitalization. Second is the generation of close to record high BoP surplus, which again has been a hallmark of the post COVID period. Going forward, with the second wave now behind us, the trade channels have begun to normalize along with domestic demand amidst gradual unlock and rapid progress on vaccination. We continue to expect the current account to post a moderate deficit of USD 30 bn in FY22 vis-à-vis a surplus of USD 24 bn in FY21. However, we now mark up our estimate of FY22 BoP surplus to USD 61 bn (USD 87 bn in FY21) from USD 41 bn earlier. A healthy BoP surplus could keep INR relatively insulated from any excess volatility in EMFX from anticipated progress on monetary policy normalization by systemically important central banks in the coming quarters.
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