In what will give comfort to foreign investors as well as global rating agencies, Reserve Bank of India Governor Raghuram Rajan on Tuesday said that the current account deficit (CAD) can be contained at $70 billion this fiscal.
“There is increasingly a sense amongst analysts that the CAD problem is under control. $70 billion that the government proposed as CAD after calculating it with us seems now imminently reachable,” Rajan said during an interview to CNBC-TV18, adding that some independent analysts expect it to be even better.
Rajan’s comments come soon after official data revealed that the CAD rose to 4.9 per cent of the GDP in the first quarter of the fiscal, raising concerns that efforts to contain it will not have the desired impact.
Higher gold imports and slowdown in exports were among the main factors in pushing CAD to a record high of 4.8 per cent of GDP or $88.2 billion in 2012-13. The finance ministry and the RBI has unleashed a series of measures to contain it at $70 billion.
Rajan also said that he is working to turn investor sentiment positive for India to help boost GDP growth rate.
Meanwhile, welcoming the recent decision of the finance ministry to enhance capital infusion in banks, Rajan said that this will help lower the cost of borrowings. “Better capitalised banks will have low cost of borrowings,” he said.
In his first mid-quarterly monetary policy review on September 20, Rajan had hiked the repo rate by 25 basis points but had cut the marginal standing facility (MSF) rate by 75 basis points to 9.5 per cent.
The RBI on Monday cut the MSF further to 9 per cent. Rajan attributed this to the stability in the rupee which gave the confidence to cut the short-term rate.
“I feel the interest rates we had in place as a result of the exceptional liquidity measures were a little high given the growth and the inflationary situation in the country. We needed to get out of them at a measured pace as we saw stability in the currency being restored,” he said.