The new refinance rate, which is lower by 2 per cent to the central bank's 9 per cent bank rate, will be effective from Thursday and valid up to March 31, 1999. "The new interest rates will be applicable up to March 31, 1999 after which status quo ante will be restored automatically, unless otherwise notified," stated a central bank release.

In keeping with the centre announcement on Wednesday, the Reserve Bank has effected concommitent changes in interest rates of various other export-finance schemes of commercial banks. The pre-shipment credit up to 180 days has been brought down to 9 per cent from 11 per cent. Beyond 180 days and up to 270 days it has been cut to 12 per cent from 14 per cent and against incentives receivablefrom government covered by ECGC guarantee up to 90 days from 11 to 9 per cent.Interest rates for all other export-credit schemes have also been lowered by an identical margin -- two percentage points. The 7 per cent refinance rate will be temporary in nature in tandem with the new export-credit rate which is effective only till March 31, 1999.

The lower interest-rate regime for export credit is seen as a corrective measure on the 6.5 per cent incremental export-credit scheme announced by the central bank in June.

The Reserve Bank was forced to withdraw it following opposition from banks and exporters. The export-credit scheme of June was meant only for incremental exports over and above export houses' export value in 1997-98. The scheme was abandoned soon after its announcement as it was found to be full of loop-holes and operationally difficult to implement.

The new refinance rate maintains the usual 2 per cent margin that existed between the refinance and export-credit rate for banks. The margin is,however, lesser by 50 basis points compared to that offered to banks in the now defunct incremental export-credit scheme. The central bank had offered a 4 per cent refinance rate against the concessional export credit of 6.5 per cent in the incremental scheme.

According to observers, the new scheme will be against the interest of banks. Due to the lower export-credit rate, banks will be forced to seek refinance from the central bank and restrict their spread within the 2 per cent margin offered by the Reserve Bank.

At present, banks are not availing of the central bank's refinance window as the system is flush with liquidity. With the lowering of the export-credit rate to 9 per cent, it will no more be feasible for the banks to lend from their own funds. The banks will be forced to avail of the refinance window in order to lend at 9 per cent, said a banker.