JOIN USRupee fever: RBI injects CAD drug a day too soon
The battered rupee may have weighed heavily on the Reserve Bank of India’s (RBI) mind which came out with the March quarter current account deficit numbers a day in advance. The substantially improved numbers prompted the Indian currency gain, backing off from a record low of 60.76 to a dollar on Wednesday.
The Finance Ministry, however, said any pessimism or optimism on the short term increase or decrease in CAD was not warranted.
The RBI data revealed CAD has narrowed to 3.6 per cent of gross domestic product in January-March quarter from 6.7 per cent in the December quarter. The rupee, which has been under pressure due to high CAD, recovered 51 paise to close at 60.19 to a dollar.
In dollar terms, the CAD narrowed to $18.1 billion in January-March versus a $31.9 billion in the previous quarter.
“We do certainly believe that the market is overreacting. And this is evident from the fact that it overreacted by anticipating a much higher CAD for the entire last year,” the ministry said in a statement to reporters. The statement came after Finance Minister P Chidambaram’s comments about corelation between CAD and capital flows were misconstrued by the market and the rupee was seen shading some gains for a brief while in the morning trade.
The CAD, however, hit a record high 4.8 per cent of GDP in fiscal 2012-13 mainly because of rising imports of oil and gold, but was lower than an expected gap of 5 per cent.
The RBI usually publishes the CAD figures on the last working day of the quarter and analysts felt advancing the release was probably aimed at calming nerves after the rupee sank to a life time low on Wednesday. Analysts felt, the more distrurbing numbers were that of India’s external debt which was $390 billion in March end this year, up 12.9 per cent from a year ago. They said $390 billion of debt against $290 billion forex reserves was worryingly inadequate and that the external debt situation should get more focus now.