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CAD high, but situation comfortable, says Rajan

business Updated: Dec 11, 2014 23:41 IST
HT Correspondent
HT Correspondent
Hindustan Times
RBI

The Reserve Bank of India (RBI) is comfortable with current account deficit (CAD) — the measure of the difference between the inflows and outflows of a foreign currency — even after it widened in the July-September quarter, governor Raghuram Rajan said on Thursday.

“Although it has widened in the last quarter, we are comfortable with CAD scenario. I would still say that risks remain... but I am not much apprehensive about it,” Rajan said.

CAD widened to 2.1% of GDP in the July-September quarter, higher than both the previous quarters and a year earlier, the RBI said on Monday.

Finance minister Arun Jaitley has also said that there was no cause for concern over CAD since forex reserves were comfortable.

On the inflation front, Rajan said with prices easing, he expected people to invest more in paper instruments than gold. A decline in gold buying would cool imports and take pressure off CAD.

Turning to the economy, Rajan said an interest rate cut won’t by itself lead to higher economic growth, although it would have an impact.

The governor also noted the central bank was in discussions with the government about reviewing priority sector lending norms for foreign banks operating in India.

Turning to limits on foreign investments in government bonds, Rajan said it would look at raising the limit at an appropriate time, and would look at expanding it steadily.

Rajan also noted the central bank was in discussions with the government about reviewing priority sector lending norms for foreign banks operating in India.

Brushing aside allegations raised by the Enforcement Directorate that the RBI did not carry out its responsibility to stop ponzi schemes in the country, Rajan said the central bank was keeping a close watch and working with all state-level teams to take steps against chit fund companies.