No Rate Cut Now, Says Jalan

The Reserve Bank of India (RBI) governor Bimal Jalan today said there is no plan for an immediate cut in the bank rate or the repo rate though the bias towards soft interest rates will continue.

"I cannot say about October (2002), but we are not contemplating a bank rate cut this week or now," Jalan said, on being asked whether the RBI plans to cut rates before its mid-term monetary policy review slated to be unveiled in October.

The bank rate is now pegged at 6.5 per cent and repo rate 5.75 per cent.

His comments caused government bond yields to dip, with the benchmark 10-year bond yield falling to 7.1631 per cent from Thursday's 7.1789 per cent.

The 10-year bond yield had dipped to a historic low of 7.1385 per cent in April ahead of the last monetary policy.

Commenting on the liquidity overhang in the system, Jalan said : "The demand is weak, the external situation is good with a lot of dollar inflows. In the totality of the demand plus supply, there is no liquidity problem."

Jalan was speaking to reporters on the sidelines of a function held to distribute the Reserve Bank Rajbhasha Shield 2000-01 to banks and financial institutions.

"We do open market operations (OMOs) when necessary. The idea is to keep the markets in a good shape," he said adding "Our main objective is to keep liquidity comfortable."

Jalan also said he expected inflation to remain benign, scotching market speculation that the country's worst drought in 15 years would cause prices to rise and give the central bank less room to follow a soft interest rates policy.

On the recent rise in rupee, the central bank chief said that he was not concerned. He also added that there was no link between Indian interest rates and rate moves in the United States. "Our situation and the US situation are different and whatever action will be taken will depend on the Indian situation."