Millennium Post

Cautious stand influenced by external sector woes: Ranga

Reserve Bank's decision to maintain a status quo on interest rates has been influenced by external sector considerations, specially widening current account deficit, Chairman of Prime Minister's Economic Advisory Council, C Rangarajan, said.

'Yes, I think it is a difficult choice. The RBI has taken a cautious stand...the decision has been largely influenced by the external sector consideration. The current account deficit (CAD) is high and more recently the rupee has been under pressure. This appears to have been a major factor influencing the RBI to pass this stand,' Rangarajan said post-RBI policy announcement.

He said going forward the price situation seems to be continuing and there have been some administered prices that needs revision.'But even the depreciation of the rupee will have some impact on the price situation,' he added.

 Rupee had hit an all-time low of 58.96 per US dollar last week on concerns the US Federal Reserve might pull back its quantitative easing programme in a phased manner.

Rangarajan said the developments on the external situation in the coming six weeks will determine RBI's next policy review on 30 July.
'If the capital flows are resumed and if the rupee is not under the kind of pressure it has been in the last few weeks, the RBI would have an increased space to operate. I personally think that the external sector considerations will again be the predominant one even by the end of July,' he said.

The current account deficit is estimated to be around 5 per cent of the gross domestic product (GDP) in 2012-13 fiscal.
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