The U.S. current-account deficit increased to US$136.1 billion in the first quarter of 2003 from a revised US$128.6 billion in the fourth quarter of 2002, the U.C. Commerce Dept. reported Thursday.

The 6% jump in the deficit has RBC Financial calling for a 25 basis point cut to U.S. interest rates..

RBC says that although the increase was less than expected, but it is still a new record.

“The basic story does not change,” says RBC. “record-size deficits mean the U.S. is spending more abroad than it is earning and must finance this by borrowing, such that the current account deficit is matched by an equal-sized flow of foreign capital coming in to the country”.

RBC says that the state of the current account is behind the downward trend in the U.S. dollar. “The lower dollar make imports more expensive and will eventually curb American consumption of foreign goods and services, eventually reducing the current account deficit to more sustainable levels. This adjustment will take years,” it notes.

In a separate release, U.S. initial unemployment claims for last week fell 13,000 to 421,000. This was a bit better than expectations, although the prior week was revised slightly higher. “Claims persisting above the 400,000 threshold signifies a still-weak labour market,” RBC says.

On the basis of this jobless recovery, RBC says that it still expects a 25 bps next week, although some are still calling for a 50 bps move.