Finance minister Yashwant Sinha has put the ball in the Reserve Bank of India's court by reiterating today that any changes in domestic interest rates would be decided by the central bank.
"I have always maintained that monetary policy is strictly the domain of the Reserve Bank of India (RBI). Any decision on cutting interest rates, the depth of the cut, the timing of the cut, will be decided only by the apex bank," he said.
Bankers have been expecting the RBI to lower the benchmark bank rate -- currently pegged at 7 per cent -- in the forthcoming mid-year review of the monetary policy to be unveiled in October 22.
Some bankers even feel the RBI could announce a rate cut before the policy. Worldwide, central banks have cut rates in the wake of the September 11 US terrorist strikes. The US Fed cut its benchmark rate twice over the last one month.
Sinha said the pace of the government's borrowing programme in the current financial year has been faster than the previous year. The current easy liquidity conditions in the money market have prompted the government to announce a big issue slated to be auctioned on Monday, he said.
The government will hold twin auction of 10.18 percent 2026 bond (Rs 2000 crore) and 14-year bonds (Rs 6000 crore) on Monday.
Bond prices fell by 50-60 paise across maturities today on the eve of the twin auction. Dealers, however, said the liquidity condition is good and the auctions are likely to be well subscribed.
Sinha said the government was committed to control borrowing and the Fiscal Responsibility and Budget Management Bill seeks to bring about substantial reduction in fiscal deficit. The Bill seeks to limit the total liability of the central government to 50 per cent of GDP, he said, adding "I wish that we could borrow only for productive purposes and not for consumption." The Bill aims at eliminating revenue deficit of the government by 2006.
