RBI delays ECB liberalisation plans

24 Apr 2007

1

Mumbai: The Reserve Bank of India has decided to keep in abeyance measures announced in October 2006 for greater liberalisation of external commercial borrowings, indicating a further tightening of the credit policy.

In view of the prevailing market conditions and the likely impact on liquidity, the central bank said, it has decided to keep in abeyance the operationalisation of new norms for overseas foreign currency borrowings by authorised dealer banks, announced on October 31, 2006.

RBI, in October 2006, had proposed doubling the limit of borrowing by the authorised dealers from their overseas branches and corresponding banks (including for financing export credit, ECBs and overdrafts) to 50 per cent of the unimpaired Tier 1 capital subject to a cap of $10 million.

The notification has come into effect on April 23,on the eve of the central bank''s annual credit policy for 2007-08.

A further liberalisation of foreign exchange inflow would increase liquidity in the system leading to a rise in rupee value and adding to inflationary pressure, RBI said.

The rupee, which recorded a gain of two per cent in March touching a nine-year high against the dollar, is further gaining strength and is nearing the 40-per-dollar range.

RBI has been trying to contain inflation by tightening monetary policies is likely to continue with the tough measures to check liquidity growth and prevent further rise in the value of rupee.

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