At a Price

THE measures announced by the Reserve Bank on Friday last to stem the slide in the exchange rate of the rupee constituted strong medicine indeed. At one stroke the bank rate was raised by 2 percentage points to 11 per cent, banks' cash reserve ratio (CRR) was increased from 10 per cent to 10.5 per cent, their export credit refinance limit was halved from 100 per cent to 50 per cent of the increase in outstanding export credit over the level of February 16,1996, the general refinance limit was cut from I per cent to 0.25 per cent of the fortnightly average outstanding deposits in 1996-97 and the interest surcharge of 15 per cent on import finance, in force from December 18, 1997, was doubled to 30 per cent. The increase in the CRR is expected to impound banks' funds to the extent of Rs 2,400 crore, while the cuts in the general and export credit refinance limits are together estimated to reduce their access to refinance by Rs 4,375 crore. The impact of the liquidity squeeze has been immediate: call rates have soared, banks have put up their lending and deposit rates and other money market rates have gone up.