Interest rates not under pressure: FM

The government and the Reserve Bank of India today said the short-term interest rates were not under pressure and the recent spurt in overnight call money rates was on account of the redemption of the India Millennium Deposit.

"No, I don't see any such thing," Chidambaram told reporters in the morning when asked if short-term interest rates were under pressure with call money rate touching 7 per cent.

"Basically, the current events should be viewed in light of the IMD (redemption)," Reserve Bank of India Governor Y Venugopal Reddy told reporters after a 45-minute meeting with Chidambaram in the afternoon.

The State Bank of India is scheduled to return $7.3 billion in deposits to non-resident Indians on Thursday. The deposits were raised five years ago to strengthen India's foreign exchange reserves.

"Given the magnitude of the payments, the conditions in the market are very orderly. We have the Liquidity Adjustment Facility (LAF) and the LAF is meant to take care of the underlying liquidity conditions," Reddy said. Under the LAF, liquidity is pumped in through repo auctions and it is drained through reverse repo auctions.

The RBI governor said the central bank was providing liquidity as per requirements. On Wednesday, the RBI injected over Rs 26,000 crore through its repo auctions to ease tight liquidity in the market.

"We have enough liquidity.... So, there is no problem of liquidity," Chidambaram said when asked if the IMD redemption would squeeze liquidity. He said the government would go ahead with its scheduled market borrowing plans in early January. The Centre intends to borrow Rs 10,000 crore between January 3 and January 11.

Reddy said the macro-economic fundamentals were as per the central bank's expectations.