Money & Banking
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Credit Policy
'CRR cut will lend liquidity to market'
Our Bureau
NEW DELHI, April 29
THE 50 basis point cut in CRR will provide the necessary liquidity to the money market, which has otherwise been witnessing a short-term hardening of interest rates, said Mr Arun Kaul, Managing Director, PNB Gilts Ltd.
"Due to inadequate liquidity in the system, the overnight call money rates were higher than the yields on one-year treasury bills. The CRR cut is likely to correct this anomaly," said Mr Kaul.
The money market is being developed as a purely interbank market by removing non-bank entities from the market. Moreover, the restrictions imposed on lending and borrowing by banks would reduce the asset liability mismatch that is created when banks build large positions and fund it through overnight call money borrowings.
"This would also lead to development of a healthy and vibrant repo market," he added.
The Government securities market is also likely to witness more vibrancy after SGL account holders shift to NDS by May 31, 2002.
"The number of players in the Government Securities market will increase further with regional rural banks now having to maintain their SLR on Government securities instead of with their sponsor banks," Mr Kaul said.
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