Despite high CAD, rupee remains range-bound

While the country's current account deficit (CAD) touched a high of 6.7 per cent of GDP in the third quarter of 2012-13, the rupee has not reacted much. According to analysts, the CAD figures, compiled by the government, taking into account the commerce ministry's figures on the oil import bill, among other things, is different from the petroleum ministry's figures. During the April-February period, the petroleum ministry says the crude oil import bill, including lubricants, was $129 billion. The commerce ministry's estimate shows it was $156 billion. According to economists, if the petroleum ministry's estimates are taken into account, the CAD numbers will not be as bad. In the first three quarters of 2012-13, the gap widened by $11 billion, while the rupee has remained range-bound during most of that period, with the central bank buying and selling dollars.

The reasons for the rupee remaining range-bound include strong inflow of foreign institutional investors (FII)'s money into equity and debt. Foreign direct investment (FDI) inflows, too, have been robust, all of which have supported the rupee. Also, there are expectations the current financial year will see the deficit coming down on the back of lower gold imports, stable crude oil prices and reform measures by the government, which will attract FDI and FII. (Click on graphic)