The central bank is also planning to move towards issuing more long-dated securities from medium to short-term securities in a bid to ease the pressure on interest rates in the short to medium-term and see through the government borrowing programme for 1999-2000. The government intends to borrow Rs 57,000 crore from the market.

Strips is a derivative instrument that the RBI will introduce in the debt market in future once the law is in place."The Reserve Bank has sounded us out on this proposal and we have given the required feedback. The "price auction" system is likely to be introduced for the government borrowing programme in 1999-2000," market sources said.

Currently the auction of government of India securities is done through"yield auction" where the bidder quotes a coupon for the security and the RBI decides on the coupon. The security is then issued at par at the coupon decided by the RBI.

In the "price auction" system the bidder will bid for the price of the security while the RBI has already fixed the coupon. Currently the 91-day treasury bill is auctioned through the "price auction" method. The move to switch "price auction" will stop the creation of multiple nomenclature of securities in the government securities market, dealers said. This effectively means, for example, that in the primary market there will be only one five year security carrying a particular coupon, throughout the year, while the price will keep changing.

"The move will also see the introduction of STRIPS at a later stage as multiple nomenclature of securites will come to an end," a money market dealer said. Currently, securities of the same maturities carry various coupons which will make trading in interest and principal very difficult. Apart fromthis the corpus of the security will go up, which in turn will impart liquidity in the secondary market. The move also opens up the possiblity of announcing a securities auction calendar by the RBI.

In another move, the RBI's decision to move towards issuing long-dated securites will see a siginificant easing of pressure on interest rates. But officials in the central bank are also aware that banks which lend more than 70 per cent to the government are averse to picking up long-dated securities. "We will try and tap the insurance companies, provident funds and trusts in a bigger way than before," a source close to the central bank said.