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April 29, 2002 | 1720 IST
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Jalan expects inflation, liquidity to be comfortable


Reserve Bank of India Governor Bimal Jalan on Monday expected inflation and liquidity to be comfortable, growth to be higher and no change in interest rates barring unforeseen circumstances in 2002-03.

"Call money rates at 6.1 per cent is less than bank rate and the average inflation rate is less than 4 per cent and we feel the present situation is sustainable for the next six to eight months," Jalan told reporters after presenting the Monetary and Credit Policy for 2002-03 I Mumbai.

Interest rates should be considered on real term rather than on nominal term over a period of time, he said. "We will like to move towards a more flexible interest rate regime," he said.

Jalan said two priorities were taken into consideration in the policy - to support availability of credit and pursue financial sector reforms.

Referring to the availability of credit, he said supply was plentiful while demand was poor. To make access to credit easier for small scale industries, housing finance and allied services as a part of priority sector lending.

Without naming the co-operative bank involved in the recent controversy in alleged misappropriation in government securities, the governor said, "We want to develop the G-Sec market, but if somebody goes and burns his fingers by violating all norms, what can be done about the burnt fingers?"

Jalan said regional rural banks may maintain their entire statutory liquidity ratio holdings in government and other approved securities. In order to allow sufficient time to RRBs to convert existing deposits with sponsor banks into G-Secs, this provision may be complied with by May 31, 2003.

Referring to high spreads over prime lending rates maintained by banks, he said the idea was to bring this information before the prospective borrowers.

This would help the borrowers to choose the banks based on the interest rates offered, he said adding, the country's largest bank had a less than 4 per cent spread.

"We want to have a system to base more on assessment of credit and track record," Jalan said.

On the electronic fund transfer system, he said that 13 centres of RBI were already linked to facilitate movement of funds and three more would be added soon.

R B Barman, executive director, said State Bank of India had its own EFT mechanism called STEPS, which had linked about 600-900 branches.

The Monetary and Credit Policy 2002-2003
The Rediff Budget Special

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