Rajan not in favour of sovereign bond to finance CAD

There is no reason to consider issuing a sovereign bond in global markets to fund India's bulging current account deficit (CAD), Chief Economic Advisor Raghuram Rajan said today.

 

"Certainly not foreign exchange denominated bond but even a rupee bond. Given that our focus is on easing access to Indian sovereign rupee markets and increasing liquidity here and raising depth here, it seems that's the safer way to finance than to go outside and issue a bond," he said speaking at a seminar at the annual meeting of ADB here.

 

"I am not saying these things will never change...At this point, there is no reason to look at it (sovereign bond issue)," Rajan said.

 

CAD represents the difference between inflows and outflows of foreign currency.

 

CAD had touched a record high of 6.7% in the December quarter of last fiscal year. The CAD in 2012-13 fiscal is likely to be around 5% of the GDP.

 

Describing the high CAD as "by far the biggest risk to the economy", RBI had said in its annual monetary policy for 2013-14 that "monetary policy will also have to remain alert to the risks on account of the CAD and its financing, which could warrant a swift reversal of the policy stance".

 

The RBI had said that high CAD in December quarter of 2012-13 was adequately financed by capital inflows, without any reserves depletion.

 

It also expressed hope that CAD in 2013-14 would benefit from moderation in global commodity prices.