New Delhi: President A P J Abdul Kalam gave his assent to the Reserve Bank of India Amendment Bill that empowers the central bank to frame policy on debt instruments, deal in derivatives and provides flexibility to fix Cash Reserve Ratio.
"The RBI (Amendment) Bill, 2006 has been enacted," an official release said.
The Act empowers RBI to lay down policy directions regarding government securities, money market instruments and derivatives and inspect agencies dealing with such contracts.
This will help RBI to effectively regulate the markets for interest rate contracts including government securities, money market instruments and derivatives.
The Act enables RBI to remove the lower and upper ceiling of CRR and flexibility to fix the CRR in order to deal with unforeseen eventualities like excess or lack of liquidity in the banking system.
Moreover, RBI needed the flexibility to set CRR, one of the statutory pre-emptions for resources of banks, in the context of the conduct of monetary policy becoming more market-based through increased use of indirect instruments.
The act also empowers RBI to lend or borrow securities.
"The enactment was considered necessary in view of the steady progress of financial sector reforms in India," the release said.
The volatility in the flow of foreign exchange and the market conditions in a fast-changing economy can be expected to continue in future as the financial sector progresses more and more.
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