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RBI okays forward cover for FIIs; 'price-control measures not needed now'

The RBI has allowed forward cover from authorised dealers to the foreign institutional investors to the extent of 15 per cent of their outstanding investments as on March 31, 1999 and 100 per cent of any additional investment made after this date.

The FIIs have been allowed to take forward cover on their investments upto 15 per cent of their existing investments since June 11, 1998.

The FIIs that exhaust their limits can apply to the RBI for additional forward cover for a further 15 per cent of their outstanding investment on March 31, 1999. Applications for further additional limits can be made more than once after the earlier limits have been exhausted.

As a gesture towards exporters, the central bank has allowed them the facility to issue cheques against their Export Earners' Foreign Currency balances, effective May 1. Local banks having such accounts will be authorised to issue separate cheque books for operation of these accounts.

Commenting on the forex reserves of the country, the Credit Policy says that the total reserves exceed stock of short-term and portfolio flows. ''In absolute terms, the increase in forex reserves during the year was $ 3.1 billion. After excluding forward liabilities, the increase during the year was $ 4.1 billion,'' the policy statement adds.

The Credit Policy estimates that the current account deficit is likely to be about 1.5 per cent of GDP.

According to the RBI, the major challenge of the Credit Policy is the need to reconcile the conflicting objectives of restraining the overall growth of liquidity to facilitate price stability and at the same time ensure the flow of adequate bank credit for productive sectors of the economy to improve growth.

''Assuming a normal monsoon and absence of unanticipated supply shocks, it would be possible to maintain reasonable price stability during the current year without taking recourse to monetary measures,'' the Credit Policy document states.

The RBI feels that the variation in CRR has also served as one of the most important instruments for regulating liquidity in the economy.

''The recent experience shows that intra-year variations in CRR have been effective in meeting the short-term challenges in the domestic money and forex market,'' says the RBI, adding the CRR can be varied in both the directions, depending on the assessment of overall monetary situation.

The RBI feels that stable interest rates are possible only if the government borrowings are kept within reasonable limits.

The RBI estimates the GDP growth in the region of six to seven per cent and inflation to remain in the present levels of five per cent.

UNI

RBI Governor Bimal Jalan's policy statement

April 20, 1999: The RBI's Credit and Monetary Policy

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