RBI's ECB liberalisation measures in abeyance

Indicating further tightening of the credit policy, the Reserve Bank today decided to keep in abeyance measures announced in October 2006 for greater liberalisation of inflow of External Commercial Borrowings (ECBs).

In view of the prevailing market conditions and 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.

The notification has come into effect today, one prior to the central bank's annual credit policy for 2007-08.

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% of the unimpaired Tier 1 capital subject to a cap of $10 million.

Further liberalisation of foreign exchange inflow would have increased liquidity in the system adding to inflationary pressure and led to rise in value of rupee which recorded a gain of two per cent in March touching the nine year high against the dollar.

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