Jan 02, 2019 (LBO) – Central Bank intends to reduce the threshold for foreign investment in rupee denominated Government securities from 10 percent of the outstanding Government securities stock at present to 5 percent.
Governor Indrajit Coomaraswamy, announcing the road map 2019 said this measure will be taken in view of the increased volatility in global financial markets.
He also said an enhanced market-based acceptance arrangement is to be introduced to the Treasury bond issuance system, by the end of the first quarter of 2019.
“We will introduce amendments to the Local Treasury Bills Ordinance and Registered Stock and Securities Ordinance to ensure smooth and efficient functioning of the debt management system,” he said.
“Looking ahead, we are in the process of exploring the feasibility of a single policy rate instead of the current corridor system to give clearer signals on the interest rates, reduce volatility in the call money rate and increase the transparency in the monetary implementation process.”
The hair cut policy relating to the pricing of securities will also be reviewed in line with international best practices to ensure smooth operations in the money market.
“We will be looking into expanding money market activities in a comprehensive manner by introducing new instruments such as Interest Rate Swaps (IRS) and non-deliverable forwards (NDF),”
In order to improve the competitiveness of the banking sector, the Central Bank is also planning to introduce a more cost reflective alternative benchmark interest rate, which will be based on the marginal cost of banks.
“Although we do not consider the exchange rate as an objective of monetary policy conduct, a market-based exchange rate remains a key instrument to facilitate the inflation targeting framework.”