CAD may rise further, a constraint monetary policy easing: RBI
The Reserve Bank today cautioned that current account deficit (CAD) may deteriorate further in view of declining exports and may constrain monetary policy easing.
"The CAD reached its highest ever peak of 5.4 per cent of GDP in Q2. Early indications are that it may increase further in Q3 of 2012-13, CAD has widened mainly due to worsening trade deficit," RBI said in its third quarter review of macroeconomic and monetary developments. Government is is battling a high current account deficit (CAD), which represents the difference between exports and imports after considering cash remittances and payment.
Centre is trying to attract more foreign funds into the country and has also hiked import duty on gold to check outflow of funds.
"Widening CAD has emerged as a major constraint in easing monetary policy," the RBI said, adding that in the current fiscal the CAD could exceed 4 per cent of GDP for second consecutive year.
The RBI's professional forecasters survey project CAD to be 4.2 per cent of GDP in the current fiscal.
In previous year (2011-12), the CAD was 4.2 per cent. Declining for the eighth month in row, exports contracted by 1.92 per cent in December 2012 to USD 24.8 billion, widening the country's trade deficit to USD 17.6 billion in the same month.
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