Tarapore finds RBI governor, Bimal Jalan's statement "the overall stance of the policy for 1999-2000 will be: provision of reasonable liquidity; stable interest rates with policy preference for softening to the extent circumstances permit", alarming.

Speaking at a discussion meeting organised by the India Merchant Chamber (IMC) on `Monetary policy in the context of the second generation financial sector reforms' on Friday, Tarapore said: "The biggest relief is the measure, which has not been announced viz, a reduction in interest rates. With the overreaching of the large borrowing programme for 1999-2000, and fears of an overrun, even amoderate revival of demand for credit by the commercial sector could trigger a sharp monetary tightening, and interest rates could move northwards." Reasoned Tarapore: "My concern is that any artificial softening of interest rates will have serious adverse effects on the overall monetary and credit situation. With the burgeoning borrowing programme and the unprecedented fiscal concessions granted to mutual funds (MF), banks will find it difficult to reduce deposits rates, and if despite all this, lending rates are reduced, what could eventuate is that banks will be even more reluctant to lend to the commercial sector, and from industry's viewpoint, nothing could be more disastrous."

While on the issue of interest rates, the former deputy governor turned humorous: "I recall addressing an industry chamber in 1996 when, after hearing me out with great patience, one of the eminent members said `we agree with all the rationale for the monetary policy, but now simply give us more money at lower interest rates'.As you are all aware, there is nothing I can do to help you in such a pursuit. The fact that the IMC has deemed it fit to call a superannuated person to deliver this talk assures me that your members are more open to reason."

But Tarapore commended Jalan's move to cut the cash reserve ratio (CRR) to 10% from 10.5%: "I would commend this measure and what the Reserve Bank would need to do is to very gradually keep releasing the CRR so as to avoid any sudden spurts in interest rates so long as the inflation rate remains low and exchange rates does not comes under any pressure." Tarapore also expressed strong reservations on the Reserve Bank's move to introduce 182-day T-bills. Even as Tarapore urged that the central bank and the government to obtain independent advice before embarking on this misadventure, he made it explicit that "the 364-day T-bill should not be sacrificed at the altar of a scatter-brained idea."

He said: "The decision of the RBI to re-introduce the 182-day T-bill is miscued and its isunfortunate that theRBI and the government are not learning the lessons.