A structural surge

Guest Columns

 Managing Director,

 Fitch Ratings India Pvt Ltd

 The 2003 Mid-Term Credit Policy of the RBI saw a series of announcements by the RBI governor on structural issues, which signalled his commitment to continuing structural reforms with an emphasis on implementation.

 The first of such steps is the review of the Liquidity Adjustment Facility (LAF) and finalisation of revised guidelines.

 This is a significant step given that LAF has emerged as the policy instrument for modulating system liquidity.

 Market participants will now have access to limited short sales in government securities for securities already contracted for purchase, subject to certain safeguards.

 This measure strives to meet a long-standing demand of the financial markets and Fitch believes that together with the road-map announced for introduction of the Real Time Gross Settlement (RTGS) system would deepen the financial markets.

 Large capital inflows have been driving the appreciation of the Indian Rupee against the US Dollar. This has encouraged several corporate borrowers to leave their foreign currency borrowings unhedged to benefit from arbitrage opportunities.

 Fitch believes that RBI