Outgoing Reserve Bank of India Governor Bimal Jalan said the current yields on medium and long-term bonds were low, though the lending rates of banks continued to be relatively high.
He also felt that banks must build investment fluctuation reserves to absorb any reversal of interest rates.
Asked whether real interest rates could come down further, Jalan said: "It depends on which interest rate you are looking at. In terms of the real economy, the five-year and 10-year bond rates are low. If you are looking at the lending rates of banks, they are not so low. In our structure, we have different real interest rates in different segments of the market," Jalan, who has been nominated to the Rajya Sabha, told Business Standard on Saturday in a final interview.
Asked whether the 50 basis points cut in the repo rate had been able to make the yield curve steep, Jalan said: "The flatness has reduced a little. We cut the repo rate keeping in view the good monsoon and the low inflation rate."
He refused to admit that the central bank had been targeting both interest rates and exchange rates.
"The RBI does not agree with a simplified view of the economic variables. We are using economic policy tools to meet particular goals at a particular point of time. We are keeping an eye on three dimensions of the economy - growth, the monetary environment and the external environment," said Jalan.
Incidentally, it is not his RBI stint but his job as member secretary of the Planning Commission that Jalan cherishes most.
"From a professional point of view, I had the most interesting time at the Planning Commission. It has an all-India development dimension and deals with all states on all economic matters," he said.
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