No hike in interest rates in near term: Reddy
By Our Banking Bureau | 27 Aug 2004
Mumbai: RBI governor Y V Reddy yesterday, at a high level meeting in Mumbai, said that the central bank is not in a hurry to tighten the monetary policy.
The governor pointed out that the recent upward movement in yields on the government bonds had been more of a psychological phenomenon and was not driven by fundamental factors.
Reddy also pointed out that the rate of inflation based on the consumer price index, hovering around 3.02 per cent, had not risen.
Reddy also referred to some countries which had tightened their monetary polices in a hurry, but the move proved counter-productive.
The central bank will soon come out with a string of measures to protect commercial banks' balance sheets from the impact of the rising interest rates.The RBI is expected to cap the maturity of the fixed rate-dated securities to be floated in the rest of the current fiscal to around three to five years.
All long dated securities to be issued in the rest of the current year are expected to be either floating rate bonds or capital indexed bonds. This is to ward off the impact of a reversal in interest rate movements.
The Reserve Bank is also expected to relax the provisioning norms for state government-guaranteed loans. Till recently, the classification and provisioning requirements in respect of state government-guaranteed exposures were linked to the invocation of the state government guarantee.
The RBI has delinked the requirement of guarantee invocation and asked banks to treat these loans as ordinary loans. This way, these loans will be classified as sticky assets, if the interest is overdue for 180 days.
