Sucking out liquidity from the system and heralding a high interest rate regime, the central bank has hiked the cash reserve ratio (CRR) on banks' net time and demand liabilities by one percentage point to 11 per cent with effect from August 29, raised the repo rate (interest rate on securities repurchased) by three percentage points to 8 per cent, allowed 15 per cent forward cover on FIIs' exposure in equities and withdrawn the facility of re-booking the cancelled forward contracts in respect of imports.

The rupee made a sharp recovery minutes after the RBI said it would come out with some announcements shortly. The rupee bounced back from a record intra-day low of 43.70 (just before the announcement) to 42.70 immediately after the central bank announced a series of measures to halt therupee's slide. The rupee was earlier quoted at 43.35/45 per dollar before the package was announced. Following the rupee recovery, Sensex also recovered by 105 points on the Bombay Stock Exchange.

This is for the first time since the series of nuclear tests, conducted in May, that the RBI came out with a package of measures to salvage the Indian currency. The rupee has depreciated by about 8 per cent since the nuke tests in mid-May.

According to the RBI, the CRR hike to absorb excess liquidity is a temporary measure. This will suck out about Rs 5,000 crore from the system and rein in money supply. The central bank has decided to pursue a tight money policy in anticipation of the Resurgent India Bond inflows which will start trickling in over the next few days, analysts said, adding, ``Interest rates are expected to go up as a result of the new measures.''

The central bank has also withdrawn the facility of splitting the forward commitments into spot and forward legs given to corporates in 1993. Besides,it has threatened to cancel the facility of maintaining export earners foreign currency (EEFC) accounts if ``there is evidence of willful delays in repatriation of export proceeds'' and directed authorised dealers to report their peak intra-day position.

``These measures have two main objectives: sucking out excess liquidity from the system and thereby reducing arbitrage opportunities between money and forex markets and prevent speculative booking by corporates. Corporates, banks and market players must behave responsibly,'' RBI sources said. Through this package, the central bank has also sent a message that it will tackle speculation through administrative measures instead of selling dollars in the market.

The hiking of the repo rate by a massive three percentage points to 8 per cent - back to the March 17 level - will increase the cost of taking dollar position and reduce the arbitrage opportunities between money and forex markets. ``This rate will be reviewed periodically keeping in view the liquidityconditions,'' the RBI release said.

Regarding the new measures on forward contracts, the RBI said: ``It has been decided to withdraw the facility of re-booking cancelled contracts for trade related transactions covering imports. However, the contracts can be rolled over on or before maturity. The facility for re-booking cancelled contracts will continue to be available for exports as is the case now.''

The central bank has also withdrawn the flexibility given to corporates in 1993 by allowing them to cover their forward commitments by first booking into a forward rate and thereafter covering the spot. In a bid to stop the ``misuse of the facility'' through booking and cancelling the stop leg of the transaction without first locking into the forward leg, the RBI has withdrawn with immediate effect the facility for splitting forward and spot legs.

The other measures announced on Thursday include permitting exporters to use the balances in EEFC account for all business-related payments in India. It has,however, warned that exporters should use balances in EEFC accounts for effecting payments abroad to the extent possible. ``If there is evidence of willful delays in repatriation of export proceeds, RBI may, on a case by case basis, reduce the entitlement or withdraw the facility of maintaining EEFC accounts,'' the RBI said.