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Date : 20 Aug 1998
RBI announces package of measures

Highlights of the Package of Measures announced by RBI today

  • As a temporary measure, CRR hiked from 10 per cent to 11 per cent from August 29, 1998.
  • Repo rate hiked from 5 per cent to 8 per cent.
  • Forward cover for FIIs made available to 15 per cent of the existing equity investments as on June 11, in addition to the facility available for incremental investments.
  • Facility of rebooking of cancelled contracts in respect of import transactions withdrawn. The freedom continues for export transactions.
  • Facility of splitting the forward commitments into spot and forward legs withdrawn.
  • Use of EEFC funds allowed for domestic business payments also.
  • RBI to consider reduction in entitlements in EEFC accounts in cases of wilful delays in repatriation of export proceeds.
  • RBI to grant extension for repatriation of export proceeds in exceptional cases.
  • Authorised dealers to report end of the day and peak intra-day positions to RBI.

In view of recent developments in the foreign exchange markets, the RBI has today announced the following measures:

1. Increase in Cash Reserve Ratio (CRR)

As a temporary measure, in order to absorb excess liquidity, the CRR to be maintained by scheduled commercial banks is being increased from 10.0 per cent to 11.0 per cent effective from the fortnight beginning August 29, 1998.

2. Increase in Repo rate

The Repo rate will now be hiked from 5 per cent to 8 per cent. This rate will be reviewed periodically keeping in view the liquidity conditions.

3. Forward cover for FIIs

With effect from 11 June 1998, Foreign Institutional Investors (FIIs) were permitted to take forward cover from Authorised Dealers (A.Ds) in respect of the incremental value of their portfolio (equity) investments. Over a period of time, it is proposed to gradually extend the facility of forward cover to the existing investments of FIIs in the equity markets. Initially, A.Ds will be allowed to offer forward cover facility to FIIs to the extent of 15 per cent of the value of their investments as on 11 June 1998. This will be in addition to the facility already available for incremental investments.

4. Forward contracts

a) At present rebooking of cancelled forward contracts is not allowed for non-trade transactions while it is allowed for trade related transactions. It has been decided to withdraw the facility of rebooking cancelled contracts for trade related transactions covering imports. However, the contracts can be rolled over on or before maturity. (Facility for rebooking cancelled contracts will continue to be available for exports as is the case now).

b) In 1993, in order to provide flexibility, a facility was provided to all corporates to cover their forward commitments by first locking into a forward rate and thereafter covering the spot. However, instances of misuse of the facility have come to the notice of RBI where corporates have booked and cancelled the spot leg of the transaction without first locking into the forward leg. This facility for splitting forward and spot legs for a commitment is being withdrawn with immediate effect.

5. EEFC Facility

Exporters have been provided with the facility to utilise the balances in their EEFC accounts for effecting payments for all bonafide trade and business related transactions which are of current account nature. They have also been permitted to utilise these balances for approved capital account transactions. Representations have been received from exporting community to remove restrictions on use of funds in these accounts for all business related payments abroad as well as in India.

It has been decided to permit exporters to use the balances in EEFC accounts for all business related payments in India and abroad at their discretion including payments of airfare and hotel expenditure. At the same time, exporters are advised that to the extent possible, balances available in EEFC accounts should be used for effecting payments abroad. If there is evidence of wilful delays in repatriation of export proceeds, RBI may, on a case by case basis, reduce the entilement or withdraw the facility of maintaining EEFC account.

6. Extension of time for realisation

Exporters are advised not to delay repatriation of export proceeds beyond the due date. Applications for extension of time limit will be considered only in exceptional cases where the delay in realisation is on account of external circumstances beyond the control of the exporters.

7. Reporting of peak intra-day positions to RBI

In addition to the present reporting of end of day position to the RBI, DEIO, A.Ds are advised to report (at close of business every day) their open position as at 10.00 a.m. as also their peak intra-day position.
(Alpana Killawala)
General Manager

Press Release : 1998-99/213

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