Reducing CAD is of immediate concern : RBI

MUMBAI: Containing high current account deficit is top priority for policy makers, a top RBI official said.

"The immediate concern for India is to reduce the current account deficit from its present high level." said Deepak Mohanty, executive director, Reserve Bank of India. Mr Mohanty was speaking on `Impact of Euro Area Crisis on South Asia’ at the SAARCFINANCE group meeting in Islamabad, Pakistan on Tuesday.

The statement comes a day after the Reserve Bank released it mid-quarterly review of the monetary policy which for the first time has said that the external sector and the balance of payments developments will weigh on future monetary policy action. In the wake of high current account deficit which touched 6.7% of GDP in the quarter ended December’12, the central bank has kept its key policy rate – the repo rate, the rate at which it lends to banks, unchanged at 7.25% and cash reserve ratio, the slice of deposits that the banks have to keep with the central bank unchanged at 4%.

Mr Mohanty also underscored the need for global institutions like the IMF to take the lead in suggesting ways to limit the spillover impact of the crisis in the Euro area.

“International financial institutions like the International Monetary Fund or IMF need to be more proactive to suggest ways to limit the spillover and prompt actions to be taken to arrest further deterioration in global economic condition.” He said

In this context, speedy implementation of a complete banking union in the euro area with an integrated regulatory and supervisory structure assumes importance. “In this scenario our economies need to strive for increasing resilience while being prepared to deal with the negative spillovers from the crisis.” Mr Mohanty said.

The immediate concern for India is to reduce the current account deficit from its present high level. Over the medium-term, efforts made to diversify trade towards emerging market and developing economies should be stepped up. In this context, there is greater scope for trade and financial integration in the SAARC region which will be mutually beneficial, said Mr Mohanty.