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Sep 06, 2012, 10.41 PM IST | Source: PTI

ECB action could help trim CAD gap, says Chakrabarty

The massive bond buying programme announced by the European Central Bank today could boost capital flows into the country and help cover the huge current account deficit, Reserve Bank deputy governor K C Chakrabarty said here today.

The massive bond buying programme announced by the European Central Bank today could boost capital flows into the country and help cover the huge current account deficit, Reserve Bank deputy governor K C Chakrabarty said here today.

On the flipside, the move could also jack up commodity prices, he told reporters after addressing the MR Pai memorial awards, which was given away to the women's self help group Sewa, here this evening. "Yes, the bond-buying programme announced by ECB today could increase the fund flows into our economy. If it happens, which is likely, then it can help bring down our high current account deficit (CAD). From that point, the move is good for us but it also can increase commodity prices," Chakrabarty said when sought his response to the latest round of easing by the European monetary authority.

The CAD position had hit a three decade high of 4.3% in the past fiscal, driven by higher oil and gold imports which tilted the trade balance in favour of imports. In the previous fiscal, the CAD was a comfortable 3.2 of GDP percent on favourable trade balance. Earlier in the day, ECB president Mario Draghi announced a new and potentially unlimited bond-buying programme to lower borrowing cost of the struggling Eurozone economies.

Tough the quantum of the fresh round of bond purchase is not spelt out clearly, it is assessed that it could vary from 750 billion to 1.5 trillion euros. On the inflation front, Chakrabarty told the audience that maintaining price stability will continue to be the top priority of the apex bank. The statement assumes importance in the backdrop of sticky inflation and the forthcoming monetary policy review on September 17.

READ MORE ON  ecb, rbi, impact, rate cut, liquidity

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