RBI chooses to continue with govt's WMA limit

The Reserve Bank of India (RBI) will stick to the central government's ways and means advances (WMA) limits for 2005-06.

The WMA limit will be Rs 10,000 crore for the first half of 2005-06 (April-September 2006) and Rs 6,000 crore for the second half (October 2005 to March 2006), the same as in 2004-05.

WMAs eliminate automatic monetisation of fiscal deficit because the instrument is not a source of financing the fiscal deficit.

Government meets temporary mismatches between receipts and expenditure through WMA and the amounts are fully paid off within three months. The size and cost of WMA is determined through mutual agreement.

When 75 per cent of the limit of WMA is utilised by the government, RBI may trigger fresh floatation of market loans depending on market conditions.

The interest rate on WMAs will be at the bank rate, which is currently 6 per cent and overdrafts will attract interest of 2 per cent above the bank rate, RBI said. Amounts drawn beyond the WMA limit is treated as overdraft.

The minimum balance required to be maintained by the government with RBI will be Rs100 crore on Fridays and on the date of closure of government's financial year and on June 30, when RBI closes its annual accounts.

On other days, government is required to maintain a minimum balance of Rs 10 crore.

Overdrafts beyond 10 consecutive working days will not be allowed, as per the agreement signed between the government and RBI on March 26, 1997.