RBI to rollback liquidity tightening steps after rupee stabilises

The Reserve Bank of India (RBI) on Friday said liquidity tightening measures will be rolled back only after stability is restored in the forex market as volatility hurts growth.

In order to rescue the rupee, the central bank and the Securities and Exchange Board of India (Sebi) had imposed various restrictions on the futures market by way of raising the margins and limiting the positions that market participants can take.

RBI had also prohibited proprietary trading in forex market by banks to curb undue speculation in rupee which was resulting in the volatility of the exchange rate.

While addressing an award function in Hyderbad on Friday, RBI Governor D Subbarao said: "We will roll back these (liquidity tightening) measures only after we determine that stability has been restored to the foreign exchange market."

In RBI's view, he said, "undue volatility of the exchange rate is harmful for growth and stability and such volatility should be curbed".

The rupee, which had touched life time low of 61.21 against a dollar on July 8, was trading around 60.80 on Friday.

In order to contain Current Account Deficit (CAD) and arrest value of declining rupee, the central bank had in July also raised the cost of borrowing for banks and reduced availability of funds to curb speculation.

The central bank did not roll back these measures in its first quarter monetary policy which was unveiled earlier in this week.

With inputs from PTI