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RBI makes credit account convertibility more Liberal

New Delhi November 01, 2006

The Reserve Bank of India after announcing its half-yearly monetary review policy has come out with a very balanced and forward looking Credit Policy. While there is a 25 basis points increase in the repo rate which sounds caution on the liquidity front, leaving the bank rate and the reverse repo rate unchanged signal the RBI's commitment towards growth.

Industry is particularly impressed by the bold steps taken by the RBI in liberalising the capital account.

Prepayment of ECB up to US $ 300 million from the previous US $ 200 million without prior approval of the Reserve Bank is a right move. This would give greater flexibility to the corporate sector in prepayment of their external commercial debts. This also indicates that RBI's confidence in the fundamental of the economy, where it does not mind large amounts of foreign exchange coming in and going out at short notice.

Similarly the increase in extant ceiling of overseas investment by mutual funds from US $ 2 billion to US $ 3 billion is also a move towards a more liberal Capital Account Convertibility.

The RBI has also very rightly enhanced the existing limit of US $ 2 billion on investments in Government securities by foreign institutional investors (FIIs) to US $ 3.2 billion by March 31, 2007.

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