Reduction in CAD

Reduction in CAD, pick up in exports improve India’s external sector: RBI

The Reserve Bank today ruled out any major impact on domestic markets by the US Fed's tapering its monthly bond-buying programme from later this week.

The apex bank said that India's external sector has improved with reduction in Current Account Defecit, CAD and a pick up in exports.

In its eighth Financial Stability Report released today, RBI said, external sector risks have been reduced considerably and the effect of the tapering on the economy is expected to be limited and short-lived.

On the occasion of releasing the Report in Mumbai, RBI Governor Raghuram Rajan warned on the high inflation as a hurdle for easy money policy. He said the outlook for the country's economy has improved, with export growth regaining momentum, but growth is still weak.

Mr. Rajan also warned against the rising tide of bad loans saying risks to the banking system have increased since June this year.

The RBI report said that CAD is expected to be less than 3 per cent of the GDP during the current financial year as the country's external position appears to be manageable and reserves seem adequate.

CAD shot up to an all-time high of 4.8 per cent last year on account of a heavy trade deficit and higher gold imports.

The tapering, from January, of the USD 85-billion monthly bond buying programme by US Fed to prop the American economy, has given India time to replenish forex reserves and rein in high CAD, which was at 3.05 per cent in first half of this fiscal (2013-14) as against 4.8 per cent last fiscal.

The US Fed announced this month that it would cut back on bond buying by 10 billion dollar to 75 billion dollar a month following improvement in the country's economy.