ECB bond-buying plan could help trim CAD gap: Chakrabarty

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

On the flipside, the move could also jack up commodity prices, he said. “Yes, the bond-buying programme announced by ECB could increase the fund flows into our economy. 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.

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[caption id=“attachment_447488” align=“alignleft” width=“380”]  In the previous fiscal, the CAD was a comfortable 3.2 of GDP percent on favourable trade balance. Reuters[/caption]

The CAD position had hit a three decade high of 4.3 percent 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.

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.

PTI