India's current account deficit hit a record high 4.8 per cent of gross domestic product in the fiscal year that ended in March, fuelled by rising imports of oil and gold, but was lower than an expected gap of 5 per cent, giving a boost to the battered rupee.
The current account data was released a day ahead of schedule and a day after the Indian rupee touched a record low of 60.76 to the dollar. The Indian currency rose as high as 60.31 to the dollar in early Thursday trade after the data release.
"I think there was a clear motivation on the part of the RBI to put the market at ease. It shows they were uncomfortable at the recent sell-off, and perhaps, this is the best way to combat that," said Jyotinder Kaur, economist at HDFC Bank.
The current account gap for the full fiscal year ending in March was $87.8 billion, compared with $78.2 billion a year earlier.
For the January-March quarter, India's current account deficit narrowed from the record high touched in the previous quarter, as non-oil and non-gold imports fell due to slowing economic growth.
The current account gap in the March quarter was $18.1 billion, or 3.6 per cent of GDP, lower than 4.4 per cent gap forecast in a Reuters poll of economists and below the $21.7 billion deficit a year earlier.
"Essentially non-oil, no-gold components of imports showed a decline, reflecting slowdown in domestic economic activity," the Reserve Bank of India said in a release.
India, the world's biggest gold buyer, has announced a slew of measures to curb demand for the yellow metal, which accounts for about 11 per cent of overall imports.
Last month, the government raised the import duty on gold to 8 per cent and the RBI placed curbs on banks on lending against gold and gold jewellery.
While analysts expect the current account deficit in the current year ending March 2014 to narrow, a beaten-down rupee may keep foreign investors wary and weigh on the current account gap.
In the quarter ending June 30, the current account deficit "could be around 5 per cent because of the huge trade gap in April-May. From the second quarter onwards, we will see this gap softening because of the measures taken by the RBI and government, which will ease the trade deficit," said Shubhada Rao, chief economist at YES Bank.