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"It will potentially release additionally liquidity of over Rs 300 billion (USD 5.36 billion), equivalent to about 50 basis points reduction in the CRR," RBI said. The RBI decision comes within days of the government announcing a slew of measures to boost exports that have been hit by global demand slowdown. On the weakening of the rupee against the US dollar, the central bank said the domestic currency`s depreciation over the past several months has helped domestic producers gain in competitiveness over foreign producers.
"Over time, this should result in expanding exports and contracting imports, thus acting as a demand stimulus," RBI said in its mid-quarterly review of the monetary policy. The rupee has depreciated over 20 per cent against the US dollar in the past one year. Exports, however, have been hit due to demand slowdown in the developed markets and contracted by 4.17 per cent in May.
The rate of interest charged on the ECR facility will continue to be the prevailing repo rate under the Liquidity Adjustment Facility (LAF), which is 8 per cent. The new limit will be effective from June 30. M Rafeeque Ahmed, president of Federation of Indian Export Organisations (FIEO) said that "increase in refinance would provide necessary liquidity to MSME export sector". He said the move would help banks to replenish the funds earmarked for the MSME export sector and ensure that funds are easily available to the sector in adequate measure.
