"The market expects interest rates in the medium-term to come down. I thinkthey are headed majorly down," Manoj Rane, vice-president, treasury atprivate sector IndusInd Bank told Reuters Television.

"In the short term, some glitches are bound to be there, but the (ReserveBank of India) Governor would like to take some follow-up measures on theforthcoming budget rather than be pre-empted by the market...," Ranesaid.

Finance minister Yashwant Sinha presents the budget for 2000/2001(April-March) on February 29 and the central bank is widely expected to cutinterest rates soon after the budget announcement.

The Reserve Bank of India's (RBI) bank rate and banks'CRR are currently at 8and 9 per cent respectively.

Rane said bond yields were headed down and would track interest ratemovements.

Bond prices fell sharply last week, ending weeks of spectacular gains, afterthe RBI resumed aggressive open market operations after a two-month gap andon deputy governor Y V Reddy caution to the market against excessivespeculation."The RBI has put a ceiling and a floor by having a purchase anda sale window to prevent from such a thing to happen (sharp gain and fall inbonds)," Rane said.

However, Rane said there were large leveraged positions in the bond marketand many banks treasuries had taken approvals for higher limits on bondpurchases on hopes of a CRR and a bank rate cut.

"Till that evens out, I doubt whether you will see some decisive movement inyields," Rane said. Prices in the long maturity government bonds fell bynearly four rupees last week.Rane said the RBI's statement cautioning marketparticipants were aimed to curb rising expectations of a large cut in CRRand bank rate. "Besides overheating, they (RBI) were concerned onexpectations of a bank rate cut and a CRR cut, the fact this was alreadycompletely discounted." "In fact whether they (the central bank) would do itor not is another issue, but they wanted to say it was not the right timefor bonds to discount that," Rane said.