MUMBAI, Mar 30: The money and gilts markets remained stable in 1997-98 except for some aberrations in the last quarter, when call rates zoomed to 140 per cent and the yield to maturity (YTM) of dated papers dipped substantially as the prices of securities rose.The Reserve Bank of India (RBI) kicked-off the year with efforts to integrate money, gilts and forex markets. But the Chinese walls were once again erected after the rupee started losing ground against the greenback and speculators took advantage of excess liquidity and low call rates in the money market.
Gilt prices rose across the board and the yields fell as the Reserve Bank sent easy money signals through cuts in bank rate and cash reserve ratio (CRR) in the April and October monetary policies.
The securities market witnessed winds of change. The RBI decided to pay underwriting commissions to primary dealers and quickly followed it up by introducing the 14-day treasury bill auctions, setting up the satellite dealership network for governmentsecurities, opening a fixed-rate repo window, and floating the inflation-index bonds. The RBI deftly handled the government's borrowing programme by raising Rs 33,000 crore in the first-half. Healthy growth in bank deposits and comparatively low offtake in bank credit helped the central bank manage the government's borrowing programme with ease.
Throughout the first three quarters of 1997-98, call rates averaged around 5 per cent, determined by surplus liquidity in the system. In the last quarter, it rose to the 8-10 per cent band following the hardening of short-term rates.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
