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Indian banking liquidity comfortable: RBI

The chief of the Reserve Bank of India said on Sunday the liquidity in the banking system was comfortable enough to take care of any excesses in the government's borrowing programme.

"We do not expect any pressure on liquidity," Reserve Bank of India Governor Bimal Jalan told reporters on the sidelines of a banking conference in Pune.

Jalan did not comment on whether the government will exceed its budgeted borrowing programme through bonds for fiscal year 2001-02 (April-March).

It has already marginally exceeded the target for dated securities, raising Rs 1.01 trillion through 29 bond issues in April-December.

Some analysts expect it will borrow another Rs 250 billion to compensate for any shortfall in tax revenues because of a sluggish economy.

Jalan also said the country's monetary authority expected to continue with its soft interest rates bias but did not comment on whether any further cuts were likely.

The bank has cut its benchmark bank rate to 6.5 per cent currently from 8.0 per cent at the start of last year in three separate moves.

The bank rate is a reference commercial banks use to price loans and deposits.

"We have a soft interest (rates) bias," Jalan said. "We would like to keep the interest rates environment favourable for borrowings and so on. Inflation is also very low."

He said while interest rates in the securities market falling by around 300 basis points over the past year, the central bank was not be worried about any monetary expansion.

He further added that yield movements would be left to the market.

The benchmark 10-year yield, currently at 7.9 per cent, is down from 10.88 per cent at the end of 2000. It had eased to a historic low of 7.76 per cent on December 4 before retracing a bit after war tensions between India and Pakistan erupted.

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