Chennai, July 6 (TIWN) High crude prices and relatively strong domestic demand weighed on India's June trade deficit at $25.6 billion, said Kotak Securities.

The report said imports were a reflection of high energy costs-oil, coal- as well as strong domestic demand. Imports in June increased to $63.6 billion (May: $63.2 billion) "a record high" led by an increase in oil imports to $20.7 billion (May: $19.2 billion).

Overall, trade deficit continued to widen at $25.6 billion.

(May: $24.3 billion) and 1QFY23 deficit stood at $70.3billion led by strong imports, Kotak Securities said.

"With exports at the risk of slowing down due to risks of (1) a global growth slowdown led by the US and (2) correction in global commodity prices, and imports likely to stay relatively stable, India's trade deficit is likely to remain wide. Even with our FY2023E CAD/GDP (current account deficit/gross domestic product) estimate at three per cent (assuming crude oil price average at $105/bbl), we see upside risks to our estimate," Kotak Securities said.

Further, with global monetary policy tightening still underway, without visibility of an inflection point, capital flows will remain in the risk-off zone which will weigh on the overall Balance of Payments (BOP).

Expecting the US dollar at Rs 78.5-80 in the near term, Kotak Securities said, the rupee held up well against the former.

However, (1) widening trade deficit, (2) narrowing of interest rate differentials, and (3) Reserve Bank of India's foreign exchange intervention strategy (sell spot along with buy-sell swaps) leading to a collapse in forward premiums, led to relatively sharp depreciation in the rupee recently, the Kotak Securities report said.

Citing the uncertainty in the global macro environment, the report said the Indian rupee is likely to be under pressure, especially if crude prices remain elevated and global growth slows down.