Export earnings fell, for the first time this year, in the month of October, while the cumulative trade deficit for the first ten months of this year doubled, the Central Bank revealed yesterday.
Releasing the External Sector Performance for the month of October 2010, the Central Bank showed that export earnings fell for the first time, down 4.9 percent year-on-year to US$ 882.2 million. The import bill grew by 41.4 percent to US$ 1,751 million. The trade deficit had expanded 179.9 percent to US$ 868.9 million.
The country’s major export markets the US and European Union have been battling to revive their economies. Standard Chartered Bank in a recent report said export earnings could weaken further in 2012 if the economic slump engulfing the West continued unabated.
Total export earnings for the first ten months of this year slowed down to 23.4 percent to US$ 8,702.1 million while the import bill grew at a much faster pace, up 50.7 percent to US$ 16,436 million. The trade deficit had expanded by 100.6 percent year-on-year to US$ 7,733.9 million.
Commercial bank dealers said the import demand continues to be severe and strong credit growth is also fuelling this demand in part.
The Central Bank continues to defend the exchange rate, and this is squeezing rupee liquidity in the banking system. Together with growing credit, this is putting pressure on rupee interest rates. The Central Bank yesterday pumped in Rs. 15 billion to the system to ease pressure on overnight interest rates, which have eased since peaking a few days ago.
The rupee closed at 113.89/90 yesterday (23) and dealers said the Central Bank had sold US$ 560 million to defend the exchange rate since the rupee was devalued by 3 percent in November 22. From July to August, the bank had sold US$ 1.1 billion to defend the exchange rate.
Fitch Ratings has said the country is among the highest-risk financial systems in the Asia Pacific Region, and that the trade account was structurally weak. (See Financial Review).
Economists have urged the Central Bank to allow the rupee to depreciate which should limit import demand. Failing to do so in a prolonged basis would put pressure on rupee interest rates and the balance of payments.
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