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Raghuram Rajan: India's deficit is under control

Raghuram Rajan, governor of the Reserve Bank of India (RBI)
Dhiraj Singh | Bloomberg | Getty Images
Raghuram Rajan, governor of the Reserve Bank of India (RBI)

India's current account deficit is under control and the outlook remains positive – as long as there are no sudden economic shocks such as a spike in the price of oil, the country's central banker told CNBC.

Reserve Bank of India (RBI) Governor Raghuram Rajan, who took over the post on September 4, said India's current account deficit – where its imports of money transfers, goods and services are greater than its exports could be $70 billion in the year ending March 2014, in line with government projections.

(Read more: India names Raghuram Rajan as next central bank governor)

Rajan said, "Increasingly there is a sense, amongst analysts, amongst commentators, that India's current account deficit (CAD) problem is under control. The $70 billion that the government proposed as a CAD after calculating it with us seems now imminently reachable. Some independent analysts are saying it will be even better."

Rajan said that he was similarly confident, adding that trade numbers for this month were likely to be very healthy "from India's perspective."

India's currency, the rupee, took a hammering on the foreign exchange markets this summer as concerns about the country's weak economy, high inflation, government inaction and a wide current account deficit sent the rupee plummeting against the dollar. Only since Rajan took over at the RBI and imposed a raft of financial controls has the currency stabilized.

Rajan's optimism comes after Tuesday's downgraded growth expectations from the International Monetary Fund (IMF) (where Rajan was chief economist from 2003 through 2007). India – one of the world's leading emerging economies – suffered steep downgrades to its outlook for both 2013 and 2014, and is now projected to grow by 3.8 percent this year and 5.1 percent next.

(Read more: RBI's Rajan takes a deep dive to save the rupee)

However, Rajan still maintained that "the general sense among the public is that the current account deficit is now an issue that, barring exceptional circumstances like a dramatic price hike in oil, is going to be under control."

The RBI on Monday cut the country's overnight rate, the Marginal Standing Facility (MSF), by 50 basis points to 9 percent, having already slashed it by 75 basis points back in September 20.

Rajan said he had made this move because of stability, arguing that the rupee's value had been restored after a summer of turmoil.

"That period where analysts were competing with each other to find a bigger number for the rupee dollar exchange rate," he said, was over. "Now most people say, 'Well where it is now, a few rupees this way that way, is a reasonable level.'"

Rajan added that confidence in the Indian currency was key towards the future normalization of monetary policy.

"The point is to move back to ordinary monetary policy with a relatively stable exchange rate, where the value of the exchange rate is determined by some confidence in the long-term value of the rupee," he said.

(Read more: Onion prices sting India's central bank ahead of Rajan's first policy review)

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