MUMBAI, DEC 2: The Reserve Bank of India (RBI) today announced a series of tough measures, including a hike in the Cash Reserve Ratio (CRR) by 0.5 per cent, in a bid to suck excess liquidity from the system and to crack down on speculators and stabilise the plunging rupee. As a result, the rupee which plunged in the morning trades to Rs 39.95 against the dollar, recovered to close at Rs 39.25.

Besides raising the CRR on Net Time and Demand Liabilities (NDTL) of banks to 10 per cent, the Central Bank shelved the revised schedule of bringing down the CRR to eight per cent by April, hiked the interest rates on fixed rate repos to five per cent, removed the 10 per cent incremental CRR on NRE and NRNR deposits and banned authorised dealers from offering forward contracts to corporates based on their past performance and declaration of an exposure.

Later, addressing newsmen, the RBI Governor, Bimal Jalan said the central Bank would review its policies, if necessary. ``We'll defend the national interest if the circumstances are such,'' he said. This is the third package from the RBI since the rupee fell by nearly 9.15 per cent from mid-August. It had deferred 0.5 percentage point cut in CRR as part of its earlier package a week ago. However, this did not have much impact on the rupee which continued its fall. ``These are only medium term measures. This will be reviewed once the situation improves,'' Jalan said.

Jalan came out strongly against the forex dealers for excessive speculative activities. ``Corporates and forex dealers have taken advantage of the recently introduced forward contract facilities and indulged in speculative profit making by cancelling contracts and rebooking further in anticipation of a further lowering of Indian rupee. This has dampened the market sentiment despite strong economic fundamentals,'' Jalan said, adding, ``In October 1997, the RBI was buying dollar from the market and the forex reserves went up. Nothing has changed in the last few weeks.''

RBI governor Bimal Jalan did not rule out the possibility of raising the bank rate to curb volatility in the forex market. ``We can consider raising the bank rate... that option is open,'' Jalan said.

``There is excess liquidity in the market. We don't want this (liquidity) to be diverted to the forex market for speculative purposes.''

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.