Interest Rates Set To Decline, Says Rbi

There are already some signs of a decline in rates though it is at the short end of the market, he said.

He also announced that the system of ad hoc treasury bills issued by the government for monetising deficit will be replaced by an alternative mechanism. This is being worked out by the nion government and the Reserve Bank of India.

On the recent cut in cash reserve ratio and statutory liquidity ratio, Rangarajan said the objective is to lower CRR from the current level of 11.5 per cent to 10 per cent and SLR from 27.5 per cent at present to 25 per cent.

 

The finance minister will announce the alternative to ad hoc bills in the next budget, Rangarajan said.

He was responding to a query about the government decision to phase out ad hoc bills by March next year. He was speaking at the "Destination India -- global summit on investment opportunities", organised by the Federation of Indian Chambersof Commerce and Industry.

Details are being discussed by the government and RBI, he said, adding that ad hoc bills render RBI "less free" to control money supply. Rangarajan said the government had overshot the limits for market borrowings on several occasions in 1995-96.

RBI is now in a better position to use money market operations for monetary control after the cut in CRR and SLR, simplification of the bank interest rate structure, and freeing of deposit rates of non-banking finance companies.