RBI Deputy Governor Urjit Patel on Thursday said the central bank expects Current Account Deficit (CAD) around 1.5 per cent of GDP in the current fiscal. “This year, our current account deficit would be in the region of 1.5 per cent of GDP”" he said at an event organised by Ficci. For the first quarter ended June, CAD narrowed to 1.2 per cent of GDP at $6.2 billion following contraction in trade deficit and higher earnings from services exports.
He noted that higher cost of restructuring pushes the cost of capital and RBI is trying to address this issue.
“The higher the cost of restructuring, the higher the cost of debt workout, the more it builds in the cost of capital from the side of the lender, and this is something we are in middle of addressing,” he said.
Besides, he said, fiscal deficit of both the central and state governments also plays an important role in the cost of capital as they are the largest borrowers. Ahead of the monetary policy review on September 29, Patel said low inflation over medium-to-long term will help bring down cost of capital.
“Sustained low inflation which anchors inflation expectations at a low enough level is an important ingredient for making the cost apposite to that particular level of inflation and inflationary expectation. It's not inflation last week or last month, but its medium-to-long term inflation,” he said.