The October ’99 Monetary and Credit Policy has to be viewed in the context of the monetary developments that immediately preceded the announcement. I fancy that most market participants would have heaved a huge sigh of relief at the balanced approachof the policy.The recent developments in the money markets wherleby we have seen the overnight money-market rate move up to over 25% on occasion, had made most market participants uncertain about the direction of interest rates.

It is against this background that the Credit policy is likely to be welcomed by most market professionals - be they financial institutions, banks, corporates or mutual funds. It is to be lauded for removing some impediments, while at the same time spelling out the planned evolution of the market.

For the market, in terms of immediate impact, the CRR cut by 1% will infuse much required liquidity and even more importantly, will reassure market participants and industry about the Central Bank’s stance towards Monetary policy. The additional measure of doing away with statutory requirement on FCNR deposits, will also help in this reard. The special liquidity support that has been created to alleviate any Y2K concerns, is warmly welcomed.

The introduction of a two week lag in the maintenance of the cash reserve ratio, should help smoothen the overnight market as all players will no longer need to work on the basis of approximations.

For industry, the removal of import surcharge, and the penal interest rate on export bills, will be heartening. The liquidity that is created by the cut in CRR, and other measures should help reactivate the market for corporate debt - particularly commercial paper.

Amongst other noteworthy measures that have been introduced, the “cheque-writing” facility that has been offered to Gilt Funds and Liquid income mutual funds is an additional option for investors in these funds. The permission granted to mutual funds to undertake FRAs/IRS, also underlines and enhances their increasing presence in the fixed income amrket, and should increase the degree of liquidity for these derivatives.

The further regulatory relaxation of Prime Lending rates is another step forward and should be welcomed by banks as well as the corporate sector.

The developments on the various structural measures that have been outlined as “in-progress”, such as exchange traded repos and the retailing of govt. securities will be watched very closely by the market.

The data on volumes of the call money market that is proposed to be released on a daily basis, will be valuable to market participants in gauging, and consequently stabilizing this vital component of the money market.

In summation, this is a policy statement of subtle adjustment that should help to underpin the nascent industrial recovery. With improved liquidity to match expected credit sdemand and the fiscal rectitude promised, we whould be set for an era of sustainable economic growth.