RBI pegs CAD at USD 56 bn; Re recovers after Rajan's pep talk

Seeking to reassure investors, RBI Governor Raghuram Rajan today said there is no fundamental reason for rupee to fall again, and pegged the current account deficit for 2013-14 at USD 56 billion, much lower than the quantum estimated earlier.
He also said the Reserve Bank will not rush to close the special window opened for dollar purchase by oil companies.
The Governor also expressed the optimism that the second half of the current financial year will see better growth numbers on the back of good monsoon and the associated pick-up in consumption and healthy exports.
Referring to the recent decline in the value of rupee, the RBI chief said: "There is no fundamental reason for volatility in the exchange rate."

"At some time, it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that," he said in the hurriedly called press meet.
Pegging a much lower CAD for the fiscal, Rajan said: "Our estimate now is that CAD this year will be USD 56 billion, less than 3 per cent of GDP and USD 32 billion less than last year. Of course, some of that compression comes of our strong measures to curb gold import."

The current account deficit (CAD), which is the difference between outflow and inflow of foreign exchange, touched an all-time high of USD 88.2 billion or 4.8 per cent of the GDP in 2012-13.

Earlier, the government had projected the CAD in the current fiscal at USD 70 billion, which was revised downwards to USD 60 billion by Finance Minister P Chidambaram on back of declining gold imports and recovery in exports.
"It's important that RBI clarifies interpretation of economic events and the likely direction of economic policies at times of uncertainty so that the market worries about the right things and does not get into a tizzy about the wrong ones. That is my quote today," Rajan said.
His remarks seemed to have calmed currency markets as the rupee gained 41 paise against dollar to close at 63.30, after declining in the previous five days in a row.