Huge borrowing impacts rates policy: RBI

The government's huge market borrowings hamper monetary policy, but the central bank is committed to market stability, the Reserve Bank of India Deputy Governor Y V Reddy said on Thursday.

He was speaking to reporters just after Finance Minister Yashwant Sinha unveiled the Union Budget, in which the fiscal deficit for the year to March 2002 was estimated at 5.7 per cent of GDP and next year's targeted at 5.3 per cent.

Sinha also linked rates on state-run savings schemes to government bond yields.

"The RBI's objective is to manage the government's borrowing programme consistent with growth and stability," Reddy said.

"The huge borrowing programme puts constraint to some degree of freedom for interest rates maneuverability."

Reddy said any change in the central bank's monetary policy will be announced only in April, when it customarily announces its annual monetary policy.

"The RBI is to have an appropriate and flexible interest rate policy," he said.

"The RBI has said the fiscal deficit is not consistent with macro-economic stability. The focus has to be on fiscal empowerment."

Reuters

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