Mumbai: Indicating further tightening of the credit policy, the Reserve Bank on 23 April 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 31 October 2006.
The notification to this effect came on the eve of 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 2% in March touching the nine-year high against the dollar.
The RBI, which has been trying to contain inflation by tightening monetary policy, may continue with the tough measures to check liquidity growth and prevent further rise in the value of rupee.