RBI allays fears on rupee fall, sees CAD at $56 bn for FY14

The Reserve Bank of India (RBI) sought to calm investors on Wednesday, saying the current account deficit (CAD) in 2013-14 will be $56 billion - much lower than the quantum projected earlier - and there is no fundamental reason for rupee depreciation.

CAD, which is the difference between outflow and inflow of foreign exchange, touched an all-time high of $88.2 billion or 4.8 per cent of the GDP in 2012-13.

"Our estimates now is that CAD this year will be $56 billion, less than 3 per cent of GDP and $32 billion less than last year... Of course, some of that compression comes of our strong measures to curb gold import," RBI Governor Raghuram Rajan said at a hurriedly called press conference.

Earlier, the government had projected the CAD in the current fiscal at $70 billion, which was revised downwards to $60 billion by Finance Minister P Chidambaram on back of declining gold imports and recovery in exports.

Referring to the recent decline in the value of rupee, Rajan said there is "no fundamental reason for volatility in the exchange rate".

Continuing its slide for the sixth straight day, the rupee lost 17 paise to trade at a fresh two-month low of 63.88 in early trade on strong dollar demand from importers.

Rajan further said RBI was weighing various options to contain exchange rate volatility and would come out with 'appropriate' steps in the future.

Addressing a press conference, Rajan said good monsoon, healthy exports and power sector growth will lead to higher economic growth rate in the second half of this fiscal.

The RBI governor also announced that the apex bank would pump in Rs 8,000 crore in market through Open Market Operations (OMO) next Monday to ease liquidity.