Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said that India’s current account deficit (CAD) is manageable and is within the parameters of viability.
While the slowing global demand is weighing on merchandise exports, its effect is somewhat offset by strong service exports and remittances inflow, he said, speaking at the 22nd FIMMDA-PDAI Annual Conference in Dubai.
The average CAD-to-GDP ratio was at 3.3% in the first half of FY23. In Q2FY23, the CAD jumped to 4.4% on account of deficit from merchandise trade, which rose to an all-time high of $83.5 billion. The deficit in merchandise trade rose due to an increase in net outgo from the income account, the RBI said in its monthly bulletin. However, the CAD for Q1FY23 was revised down to 2.2% from 2.8%, on account of downward adjustment in Customs data.
Although there was a softening of CPI inflation in November and December, core inflation remains sticky and elevated, Das said.
The CPI inflation eased to 5.72% in December and 5.88% in November from an elevated level of 7.41% in September. The RBI, in its monetary policy in December, had projected a CPI inflation of 5.9% in Q4FY23 and 5% in Q1FY24.
“The government bond market has also remained resilient, with average bid-ask spreads being the lowest among peer nations. The yield curve has also evolved in an orderly manner without any undue volatility, despite the significantly higher government borrowing,” Das said.
However, the secondary market liquidity in G-secs is concentrated in a few securities and tenors, while the MIBOR-based OIS remains the only major liquid product in the interest rate derivative market, he said.
The term money market remains absent, despite several measures wheeled out by the RBI, he said, adding that there is a need to improve access of the retail segment to markets, especially derivative markets.
“Going forward, greater challenges will emerge as the footprints of Indian banks increase in the offshore markets, the range of products expand, non-resident participation in domestic markets grows and as capital account convertibility increases,” Das said.