Liquidity has been tight significantly over the last fortnight with call rates ranging between 8.25 and nine per cent and a CRR cut would provide the much needed liquidity (increase the money supply) and push interest rates lower, I-SEC said in its fortnightly debt market update.

Making a case for CRR cut, I-SEC said, "market sentiment is positive and the rupee has stabilised after the decisive resolution of the Kargil conflict."

CRR is the proportion of total assets that commercial banks are required to keep in the form of liquid assets to meet day-to-day currency withdrawals by its customers and other financial commitments. The rate is prescribed by RBI from time to time.

Alternatively, Reserve Bank of India(RBI) could relieve pressure on liquidity by issuing a couple of government securities through private placement route - essentially, increasing monetisation, it said.

The credit was expected to pick up sharply in the busy season (October-March 2000) "if the budding economic revival blooms into broader recovery." I-SEC said adding " a CRR cut at such a time would relieve the pressure on the system."

However, a simultaneous cut in bank rate may not help much in managing corporate credit offtake as its impact on the prime lending rate would be limited, I-SEC added.

Sounding caution about the arguments that "real interests are high and hence nominal interest rate should also be directed downwards", it said the current bout of low inflation was on the backdrop of high inflation numbers reflected in a rise in WPI and CPI by over six per cent last year.

I-SEC said, effecting change in the repo rate, another short term reference rate, would not make a material difference either as RBI's repos had not beenattracting much participation.

Till liquidity eases significantly, a reduction in repo rates would not have any impact on the markets, it added.

Referring to newly introduced inter rate swaps guidelines for foreign exchange market, I-SEC said, after initial flurry deals on the opening day, the markets remained subdued and frequency of deals would pickup in the next few months as more participants complete the required documentation and settlement procedures.