The current account deficit (CAD) will moderate in the current fiscal on account of softer global commodity prices and recent measures to dampen gold imports, said the Reserve Bank of India today.
According to the mid-quarter monetary policy review statement issued by the RBI, "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 CAD, which is the difference between the outflow and inflow of foreign currency, is estimated to be around 5 per cent of the GDP in the 2012-13 financial year. It had touched a record high of 6.7 per cent 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 under way in June," the central bank said.
As per the official data released today, trade deficit widened to $20.1 billion in May from $17.8 billion a month ago. Gold and silver imports rose nearly 90 per cent to $8.4 billion in May. Cumulatively, in April-May the import of precious metal stood at $15.88 billion.
The government has hiked import duty on gold three times in a year and recently raised it by 2 percentage points, to 8 per cent 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 the 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 per cent since January 1.
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