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Wednesday, Sep 04, 2002

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`Bank rate cut will not exceed 50 basis points'

Our Bureau

NEW DELHI, Sept. 3

THE Reserve Bank of India (RBI) would, at the maximum, go in for a 50 basis point cut in bank rate as and when it decides to do so.

"The RBI Governor, Dr Bimal Jalan, had even recently reiterated the central bank's commitment for a soft interest bias... the RBI would, at the most, go in for a 50 basis point cut in bank rate. I cannot tell you when this would happen," Mr Mohammad Tahir, Executive Director, RBI, told reporters on the sidelines of an Assocham seminar on `Managing public debt' here.

In his address at the seminar, Mr Tahir said that operationalisation of the non-competitive bidding scheme (in primary auctions of Government securities) for screen-based order-driven trading on the stock exchanges was under the active consideration of the central bank.

"An expert group comprising RBI officials and officials from the stock exchanges are looking into this matter," Mr Tahir told reporters. He held that such a scheme would help widen the investor base.

The RBI introduced the non-competitive bidding scheme in January to encourage retail participation in primary auctions, in particular by mid-segment investors such as urban co-operative banks, NBFCs and trusts, in the primary market of Government securities.

The scheme provides for allocation of up to 5 per cent of the notified amount at the weighted average rate of accepted bids.

Mr Tahir also said that the issuance calendar for Government of India securities for the second half of the year would be announced soon.

The senior RBI official said that the central bank would initiate measures to widen the base of the repo market including extending it to non-SGL (special general ledger) account holders such as CSGL (constituent special general ledger) account holders.

Introduction of longer-term repo, rollover of repos, taxation and standardised accounting are the major focus areas in the near future, he said.

He also said that the feasibility and further steps for separation of Government debt management from the RBI would be taken up once legislative action with regard to the Fiscal Responsibility Bill and amendments with regard to the Reserve Bank of India Act are accomplished.

A working group set up in 1997 had recommended separation of debt and monetary management.

Mr Tahir said that the separation of the two functions would be dependent on the fulfilment of certain pre-conditions such as development of financial markets, reasonable control over fiscal deficit and necessary legislative changes.

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