The central bank has stepped up the cash reserve ratio (CRR) on banks' nettime and demand liabilities by one percentage point to 11 per cent fromAugust 29, raised the repo rate by three percentage points to 8 per cent,allowed 15 per cent forward cover on FIIs' exposure in equities andwithdrawn re-booking of cancelled forward contracts on imports.

It has also scrapped the facility to spilt forward commitments into spot andforward legs given to corporates in 1993. Besides, it has threatened tocancel the facility to maintain export earners foreign currency (EEFC)accounts if "there is evidence of wilful delays in repatriation of exportproceeds" and directed authorised dealers to report their peak intra-daypositions.

"These measures have two main objectives: sucking out excess liquidity fromthe system, thereby reducing arbitrage opportunities between money and forexmarkets and prevent speculative booking by corporates. Corporates, banks andmarket players must behave responsibly," RBI sources said. In effect, thecentral bank wants to curb speculation through administrative measuresinstead of direct market intervention.

The immediate provocation for the announcement was the rupee's sharp fallwhen the market opened on Thursday, triggered by commerce ministerRamakrishna Hegde's statement.

The rupee could slip a little more, perhaps another one per cent, becausethe country is unlikely to meet its export growth target, Hegde had said. Inan immediate raction, the rupee dipped to 43.68/71 after opening at 43.49/52against the Wednesday's close of 43.47/53.

The rupee made a rapid recovery minutes after the central bank said it wouldcome out with some announcements shortly. At 10.48 am, the rupee was quotedat 43.30/40, off a record intra-day low of 43.70 just before theannouncement. It rebounded to 42.70 immediatey after the central bankannounced a series of measures to halt the slide. The rupee was quoted at43.35/45 a dollar before the package was announced. It finally closed at42.80/90 -- up from Wednesday's close of 43.55/60. This is for the first timesince the series of nuclear tests, conducted in May, that theRBI came outwith a package of measures to rescue the rupee. The rupee has beendepreciated by about 8 per cent since the tests.

A central bank release said the CRR hike to absorb excess liquidity is atemporary measure. This will suck out about Rs 5,000 crore from the systemand rein in money supply. The central bank has decided to pursue a tightmoney policy in anticipation of the Resurgent India Bond inflows, which willstart trickling in over the next few days, analysts said.

The hiking of the repo rate by a massive three percentage points to 8 percent--back to the March 17 level -- will increase the cost of taking dollarposition and reduce arbitrage opportunities between money and forexmarkets."This rate will be reviewed periodically keeping in view liquidityconditions," the RBI release said. On the new measures on forward contracts,the release said: "It has been decided to withdraw the facility ofre-booking cancelled contracts for trade-related transactions coveringimports. However, the contracts can be rolled over on or before maturity.The facility for re-booking cancelled contracts will continue to beavailable for exports as is the case now."

The central bank has also withdrawn the flexibility given to corporates in1993 by allowing them to cover their forward commitments by first bookinginto a forward rate and thereafter covering the spot.

In a bid to stop the "misuse of the facility" through booking and cancellingthe stop leg of the transaction without first locking into the forward leg,the RBI has withdrawn with immediate effect the facility for splittingforward and spot legs.