CB says 2012 trade gap to narrow by 10%

Reuters: The trade deficit widened 67.5 per cent in February year on year, data showed on Friday, but the Central Bank said stringent policy measures would cut the 2012 gap by at least 10 per cent.

The trade deficit widened to $ 701.8 million in February from $ 418.9 million in the same month last year, while it expanded 59.7 per cent to $ 1.7 billion in the first two months of the year, the Central Bank data showed on Friday.

A low interest rate regime coupled with a Central Bank-defended rupee encouraged imports and resulted in a record trade deficit of $ 9.7 billion, doubling from the previous year.

It also resulted in a $ 1 billion deficit in the balance of payments last year, which forced the Central Bank to raise key policy rates twice, limit credit growth to 18 per cent from 35 per cent and allow flexibility in the rupee exchange rate.

“There is a time-lag to see the reduction in imports,” Swarna Gunaratne, the Central Bank’s Chief Economist, told Reuters. “But you will see the effect soon and we can reduce the trade deficit by $ 1 billion from last year.”

February data showed consumer goods imports fell 7.5 per cent year on year, but oil imports more than doubled to $ 505.6 million due to high prices.

The Government has also raised fuel and electricity prices and taxes on vehicle imports aiming to curb dollar draining and reduce Iran crude imports to qualify for a US waiver.