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RBI takes steps to contain inflation Mumbai, October 31 Announcing the monetary policy here today, RBI governor Y.V. Reddy said both the bank rate and the cash reserve ratio would remain unchanged at 6 per cent and 5 per cent, respectively.
The RBI retained the flexibility to conduct overnight repo or longer-term repo, including the right to accept or reject tenders under the LAF, wholly or partially. Optimistic about economic growth, the RBI upped the GDP projection for 2006-07 to 8 per cent from 7.5 per cent. As a result of the new rates, home and auto loans were likely to remain the same, though loan rates for personal, consumer goods and equity market were likely to rise. As part of measures to move towards full capital account convertibility, the RBI allowed foreign exchange earners to retain upto 100 per cent of the earnings in exchange earners’ foreign currency accounts. The RBI also permitted prepayment of external commercial borrowing up to $300 million without prior approval of the central bank. It also decided to raise the existing limit of FII investments in government securities in phases to $3.2 billion by March next from $2 billion now. The ceiling of overseas investment by mutual funds was enhanced to $3 billion from $2 billion at present. The RBI increased the remittance limit, under which resident individuals would be free to remit up to $50,000 per financial year, as against the earlier limit of $25,000. Foreign exchange earners could retain up to 100 per cent of their foreign exchange earnings in their exchange earners’ foreign currency accounts. Authorised dealer banks could borrow funds from their overseas branches and correspondent banks up to 50 per cent of their unimpaired Tier I capital or $10 million, whichever was higher. The existing limit of $2 billion on investments in government securities by foreign institutional investors would be enhanced in phases to $3.2 billion by March 31, 2007. The ceiling on overseas investments by mutual funds of $2 billion was enhanced to $3 billion. |
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