Monday, June 17, 2013

Lower gold imports to moderate CAD: RBI

Mumbai: 17 Jun 2013

The Reserve Bank on Monday said the Current Account Deficit (CAD) will moderate in the current fiscal on account softer global commodity prices and recent measures to dampen gold imports.

\"Softer global commodity prices and recent measures to dampen gold imports are expected to moderate the CAD in 2013-14 from its level last year,\" the RBI said in its mid-quarter monetary policy review statement.

The CAD, which is the difference between the outflow and inflow of foreign currency, is estimated to be around 5 percent of the GDP in 2012-13 fiscal. The CAD had touched a record high of 6.7 percent in the October-December quarter.

RBI said trade deficit has widened in April-May due to surge in festival related or seasonal gold imports. \"Available evidence suggests that a moderation in gold imports could be underway in June,\" the RBI said.

According to the official data released on Monday, trade deficit widened to USD 20.1 billion in May from USD 17.8 billion a month ago. Gold and silver imports rose nearly 90 percent to USD 8.4 billion in May. Cumulatively, in April-May the import of precious metal stood at USD 15.88 billion.

The government has hiked import duty on gold three times in a year and recently raised it by 2 percent to 8 percent to curb demand. Besides, the RBI too has put restrictions on banks on importing gold.

The RBI said the main challenge is to reduce the CAD to a sustainable level and the near-term challenge is to finance it through stable flows. Huge gold imports have put pressure on the country\'s CAD, which in turn is affecting the value of rupee.

Finance Minister P Chidambaram last week had appealed to people not to buy gold and instead invest in financial instruments. The high CAD is also putting pressure on the domestic currency which fell 5.8 percent since January 1.

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