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Our Bureau

Mumbai , Dec. 12

THE Reserve Bank of India's exchange rate policy is to manage excessive volatility without any fixed target, but financial intermediaries and other agents should not view this as a substitute for an appropriate risk management policy, Ms Usha Throat, Executive Director, RBI, has said.

Speaking at the Bank Economists Conference-2003, on `Market mechanism: Preparing for the change', Ms Thorat said financial intermediaries faced both direct and indirect risk in regard to forex exposures.

The direct risk is managed through fixing open position and gap limits and reviewing the actual positions on an ongoing basis.

"While there are no limits on investing overseas, the regulations specify that such investments must only be in top rated sovereign papers and liquid money market instruments.

These restrictions are required to ensure that short term credit of banks and thereby of the system is not excessive," she said.

Speaking on the domestic debt markets, Ms Thorat said, the extension of participation to corporates in the repos market was on the RBI agenda.

With the Clearing Corporation of India Ltd (CCIL) now very well ensconced, the issue of collateral management can be handled and thus the risks of undertaking repos against non-existent securities were ruled out, she said.

"Perhaps the answer is to extend the Collateralised Borrowing and Lending Obligation (CBLO) to all entities, this would ensure borrowing at money market rates to any corporate having collateral in the form of government securities," said Ms Thorat.

`A further stage is the repos of corporate bonds and once all trades in such bonds are reported and settled through CCIL, the stage may be set for allowing repos in corporate bonds and thereby greatly enhancing liquidity', she said.

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