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|April 17, 1999||
RBI likely to avoid micro-tinkering with interest rates
The major emphasis of the Credit and Monetary Policy, to be announced by the Reserve Bank of India on April 20, will be on consolidating the structural changes that are considered desirable in the mid-term review of October 1998.
The policy would try to abstain from micro-tinkering with interest rates. This opinion was aired by Investment Research and Information Services or IRIS of Bombay.
IRIS's chief economist Saugata Bhattacharya said, ''There is sufficient liquidity in the market currently to weigh possibilities against a Cash Reserve Ratio cut. The RBI is also reportedly of the view that cutting interest rates further will not serve to increase commercial advances further. The curbs imposed on forex market transactions will continue, especially in the current unsettled circumstances, though there may be broad hints on allowing an orderly move of the rupee in the export market.''
IRIS analysts said that the structural changes likely to be introduced will focus on three main areas -- banking, money markets and debt market.
On the banking sector, IRIS said that the non-performing assets spectre is at the forefront of the regulator's mind.
Asset provisioning and income recognition norms will be further tightened. A move towards universal banking by integrating the role and functions of banks and development financial institutions or DFIs will be pushed further by implementing some of the steps in the Harmonisation Report submitted to the RBI.
IRIS further stated that the call money market will be sought to be made into a cleaner inter-bank market. This will result in a proper benchmark overnight rate.
''With the RBI-mandated asset-liability management or ALM system in place since April 1, 1999, banks will be in a much better position to monitor short-term liquidity imbalances and therefore operate in the inter-bank borrowings market in a more systematic fashion'', opined IRIS.
IRIS feels that more responsibilities are likely to be assigned to the primary dealers by the RBI to manage the borrowing programme of the government.
The RBI's Credit and Monetary Policy 1998-99
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