RBI takes measures to tighten liquidity

The Reserve Bank of India (RBI) on Tuesday announced further measures to stabilise the falling rupee and tighten banking system liquidity.

Accordingly, it has set the overall limit for borrowing under the daily liquidity adjustment facility (LAF) for each bank at 0.5 per cent of deposits, outstanding as of the last Friday of the reporting cycle two weeks prior to the current one, said a RBI release.

Currently, banks are allowed to maintain their Cash Reserve Ratio (CRR) prescribed by  RBI on an average daily basis during a reporting fortnight, with a minimum of 70 per cent of the required CRR on a daily basis, the release added.

Effective from the first day of the next reporting fortnight which is July 27, 2013, banks will be required to maintain a minimum daily CRR balance of 99 per cent of the requirement as against 70 per cent now.  All other terms and conditions of the current LAF scheme will remain unchanged, it said.

Over the last two months, RBI undertook several measures to contain the volatility in the foreign exchange market. Some intended to check excessive speculation adding to undue volatility in market conditions.