The Reserve Bank has also made it clear that it intends to bring down the cash reserve ratio (CRR) from 10 per cent to 3 per cent in the medium-term and make changes in the statute to make all reserve requirements flexible.

Outlining the issues that the Reserve Bank considering while delivering the keynote address at the third South Asian assembly at Kathmandu, deputy governor, YV Reddy, said: "The medium-term objective of reducing CRR requirements to the minimum prescribed in the statute, and the longer-term objective of proposing amendments to the statute to make all reserve requirements will be pursued, consistent with the developements in fiscal and monetary conditions".

Reddy said that he will review the restoration of freedom to corporates to hedgeanticipated exposures. "However, the issue of restoration of facility to rebook cancelled contracts needs to be reviewed with caution", he added. According to the deputy governor, the extention of facility of forward cover to FIIs is under continous review although facilites available now were yet to be fully utilised by FIIs.

"Trading in derivatives is a desirable objective, but a number of pre-conditions are to be satisfied in the matter of institutional as well as regulatory arrangements. This is a complex task, but certainly is on the agenda of reform", Reddy said.

He also made it clear that a number of recommendations of the Tarapore Committee have been accepted and others are being reveiewed form time to time.

"A view will have to be taken on each one of them only in the context of overall liberlisation of capital account, which in turn depends on among other things, progresss of our financial sector reforms and the evolving international financial architecture", he said.

The RBI deputy governoradded that the central bank was implementing the recommendations of the Report on Public Sector Enterprises, which will facilitate the efficient management of their foreign currency risks and also even out lumpy demand and supply conditions in the forex market. Reddy added that he is seriously considering the setting up of Mumbai as a off-shore financial centre.

According to Reddy, the Regulation Regulatory Authority (RRA), will submit its final report in a few weeks time wherein a few regulatory and reporting requirements in the forex market will be simplified, strealined and rationalised.

The RBI will also be setting up a clearing house and design it it on par with other leading clearing systemsss in the world. According to Reddy, the membership to the clearing house will be open to all authorised dealers (ADs-commercial banks that carry on forex business). The RBI will also be a participating member. The concept of establishing a clearing house was mooted way back in 1994. The scheme was conceived as amultilateral netting arrangement of inter-bank forex transactions in US dollars.

Reddy said that the net position of each bank arrived at the end of each trading day would be settled through the clearing account maintained by the central bank.

"The long-term objective is to establish a clearing house as a separate legal entity with risk and liquidity management features, infrastructure and operational efficiency akin to other leading clearing systems'', the deputy governor said adding that the focus areas of starting the clearing house are legal, risk and liquidity aspects, and operational infrastructure-all of which are under examination by the central bank.