14.11.13

RBI pegs CAD at $56 billion


In an attempt to talk up the markets, the Reserve Bank of India (RBI) Governor Raghuram Rajan said that the current account deficit (CAD) for this year would be about $56 billion, less than 3 per cent of gross domestic product (GDP) and $32 billion less than last year. He felt that there was no fundamental reason for rupee volatility.


“I am especially happy about the 13.5 per cent increase in dollar exports since last October, the reduction in imports by 14.5 per cent and dramatic reduction in the trade deficit by 48 per cent,” said Dr. Rajan, while addressing a hurriedly-convened press conference.
The rupee, which was on the downhill path in the last few days, touched a low of 63.90 a dollar intra-day on Wednesday. The rupee, which touched a historical low of 68.85 at end-August, later recovered to 61-62 levels before the current fall.


The RBI Governor said that good monsoon and the associated pick-up in consumption, the very healthy exports, and the strong growth in the power sector should lead to stronger growth numbers for the second-half of the fiscal year.


Turning to inflation, Dr. Rajan said food inflation was still worryingly high, and the effects of the harvest were still awaited. But looking through the headline numbers, “I am somewhat more heartened by the outcome of core Consumer Price Index (CPI) inflation, which declined to 8.1 per cent from 8.5 per cent in September. The momentum for core inflation is also on the decline.”
The Governor said that the RBI was conscious of the need to keep the system adequately supplied with liquidity, as indicated in its policy statement recently, so that productive sectors were well supplied with credit.
He added: “While borrowing from the MSF (marginal standing facility) has come down substantially after the RBI extended the term repo window, market interest rates suggest some liquidity tightness. To alleviate this tightness, we propose to conduct open market operations on November 18 for Rs.8,000 crore”.


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