Rajan pegs CAD at 56 billion, says no reason for R decline

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Rajan said there is no fundamental reason for volatility in the value of the rupee. (IE Photo) Rajan said there is no fundamental reason for volatility in the value of the rupee. (IE Photo)
SummaryRajan said there is no fundamental reason for volatility in the value of the rupee.

Seeking to calm the frayed nerves on the foreign exchange market, the Reserve Bank of India (RBI) on Wednesday said the current account deficit (CAD) in the current fiscal will come down to $56 billion, less than 3 per cent of GDP, and lower than the government estimate of $70 billion and $88 billion reported last year.

RBI Governor Raghuram Rajan assured the markets that “the latest trade data suggest we have made significant progress in curbing the size of the likely deficit for this year” and “there is no fundamental reason for volatility in the value of the rupee”.

The rupee, which opened lower at 63.90, recovered on fresh dollar sales by exporters and some banks to a high of 63.28 before settling at 63.30, a rise of 41 paise or 0.64 per cent after the RBI Governor’s soothing comments. The rupee had slumped 209 paise or 3.39 per cent in the previous five sessions.

“We have $32 billion less of CAD to finance this year, and till yesterday, we raised $18 billion through new channels. So if other financing remains the same as last year, which it seems on track for, even if foreign investors pull out significantly more money this year than they have so far, we still can break even on capital flows,” he said while addressing hurriedly called media conference here.

“Also remember that the major outflows in summer were debt outflows. That money has not come back, indeed our FII debt exposure, both corporate and sovereign, has come down from $37 billion on May 21 to $19 billion today. I presume what is left is more patient money, but given its diminished size, I do not see its possible exit as a huge risk,” he said.

Rajan said the RBI allowed oil marketing companies to return and purchase more and more oil from the markets, starting on October 14. “Today, a month later, I am glad to report that the majority of oil marketing company demand for dollars is back on market. The market absorbed the additional demand quite smoothly — in fact, participants did not

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