Missing Elements in Monetary Policy

MONEY MARKETEconomic & Political Weekly november 24, 200727Missing Elements in Monetary PolicyEPW Research FoundationThere is a surprising observation in the Reserve Bank of India’s latest mid-term policy statement of Octo-ber 30, 2007 which tends to reprimand the central banks of industrialised countries in these words: “The massive injection of liquidity by mature central banks reflects a deviation from their stance on inflation in order to ensure financial stability which could potentially weaken their ability to fight inflationary pressures” (p 46). 1 Monetary and Credit Policies The mature central banks obviously know what is in the best interest of their econo-mies; they perceive that very often sup-porting economic growth and increases in employment is the preferred path for mon-etary and other public policies rather than worrying about the potential inflationary pressures. Therefore, they jettisoned their monetarist stance in policy long ago. In re-sponse to the possibilities of recession and increasing unemployment in their econo-mies, the mature central banks have now cut their benchmark rates of interest and injected massive liquidity. Our discomfort with it arises from a sense of helplessness, the root cause of which in turn lies in the rigid pursuit of mainstream stabilisation and globalisation policies which weaken our ability to employ creative ideas and contain the spillovers of the actions of foreign central banks. No doubt, once in 1998 after pursuing a crude monetarist policy for about a dec-ade, our central bank preferred to discard excessive emphasis on macro numbers of money supply (M3) and related aggregates and promised to adopt a wider set of indi-cators from the domestic financial and for-eign exchange markets.There are thus a plethora of indicators which are articulated in the RBI’s policy papers but how they are built into a con-sistent framework of policy is as yet not clear despite the articulation of a short-term forecasting liquidity model sometime ago. More specifically, the current ap-proach of using indirect instruments of monetary policy to pursue a dear money policy since early 2005 remains unex-plained. For about six years, 1998 to 2004, interest rates were generally declining and the lending rates of banks had settled at moderate and realistic levels which helped the process of economic recovery, particularly of the industrial sector. Since then there has been considerable firming up of banks’ deposit and lending rates, which has been consciously achieved by the monetary authorities by relying on such indirect instruments as increases in the repo rate and cash reserve ratio (Table 1). In this approach to monetary policy, there has emerged a serious flaw in that society’s concerns about the cost of credit and distribution of credit for productive sectors have become secondary. Instead, the system of policy formation repetitively focuses on some broad monetary aggre-gates, though the world over such aggre-gates have been progressively de-empha-sised. In pursuing this ritual, at the begin-ning of a financial year, a money supply projection is made consistent possibly with an expected growth in realGDP and infla-tion target. Again, consistent with thispro-jection of money supply, an indicative size of expansion in aggregate deposits of banks is worked out which sets the limits on available resources for banks to lend. Finally, based on an assessment of various sources of funding, a non-food credit target is set (including commercial investments).Against these targets, the actual per-formance leaves much to be desired (see, for a comparison, Table 2, p 28). If there has ever been any concurrence between the target and the actual achievement, it can onlybeconsidered a coincidence. This is, of Missing from monetary policy is a concern for the distribution and cost of credit to the productive sectors. Instead of setting indicative targets for the growth of money supply, deposits and non-food credit – all of which have to deal with imponderables – the Reserve Bank of India’s policies should be focusing on credit distribution exercises that have direct implications for the production and investment plans of industries and also for attaining other macro objectives like price stability. Table 1: Changes in Interest Rates and Instruments of Policy(in % per annum) End-Dec 2005 End-Dec 2006 Nov 02, 2007PLRs* 10.25-10.7511.00-11.5012.75-13.25Deposit Rates* 5.50-6.50 7.00-8.00 8.00-9.50Instrument of Policy CRR 5.00 5.25 7.00/7.50$ ReverseRepo 5.25 6.00 6.00 Repo 6.25 7.25 7.75* For major banks $ From November 10, 2007.Source: RBI’s weekly supplement.Piyusha Hukeri drafted the initial note and V P Prasanth compiled the accompanying tables and graphs.

0 3 6 9 12 15 18 4.00 4.50 5.00 5.50 6.00 6.50 1/10 3/10 5/10 7/10 9/10 11/10 13/10 15/10 17/10 19/10 21/10 23/10 25/10 Ca Money Volume (Rs ‘000 Crore) (Right Axis) Call Rates Repo Rates – Outside the RBI

39 41 43 45 47 49 Monthly Averages (Jan 2001 to September 2007 (Daily) Working Days Oct 2007

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 1/10 3/10 5/10 7/10 9/10 11/10 13/10 15/10 17/10 19/10 21/10 23/10 25/10 Weighted Averages of Ca Rates (%) (R ght Ax s) 6 month 1 month ( Left Ax s) ( Left Ax s)

.

7 7.5 8 8.5 9 123456789101112131415151617192021252729 Years to Maturity 1st Week 4th Week

MONEY MARKETEconomic & Political Weekly november 24, 200731cent 2032 for notified amounts of Rs 6,000 crore and Rs 4,000 crore, respectively, through a price-based auction using multiple price method. The cut-off yields were set at 7.91 per cent and 8.45 per cent for the 10-year and 25-year papers, respec-tively same as that set in August 2007 (Table 7,p 30). On the second instance, the RBI reissued 7.27 per cent 2013 and 8.35 per cent 2022 for notified amounts of Rs 4,000 crore each through a price-based auction using multiple price method. The yield was set at 7.74 per cent for six-year paper and 8.14 per cent for 15-year paper. The government of Kerala auctioneda 10-yearstatedevelopment loan for a noti-fied amount of Rs 590.23 crore through a yield based auction using a multiple price auction method on October 4 at a cut-off yield of 8.20 per cent as against 8.19 per cent offered in the previous month for the same maturity.On October 8, four state governments auctioned10-year state loans for an aggre-gate amount of Rs 4,972 crore througha yield-based auction using the multiple price auction method. Of them, West Bengal alone accounted for Rs 2,000 crore reflect-ing the increasing reliance on market bor-rowings, as the traditional inflows from small savings have turned subdued. Among the states, the highest cut-off yield was set for West Bengal at 8.40 per cent and the lowestforMaharashtra at 8.31 per cent.In the case of Rajasthan,against the notified amountofRs 1,250 crore, competitive bids worth Rs 1,590crorewerereceived but RBI accepted bids only for Rs 950 crore UnderMSS, the RBI issued 5.87 per cent 2010 and 11.30 per cent 2010 for an aggregate amount of Rs 31,000 crore at yields rang-ing between 7.66 per cent and 7.86 per cent. Treasury Bills: The primary yields on treasury bills displayed mixed trends de-spite huge surplus liquidity. The RBI re-tained the enhanced notified amounts of all treasury bills in September and mopped up Rs 26,000 crore under normal and MSS issuances as against the targeted Rs 31,000 crore, as the 91-day and 182-day TBs auc-tioned in the last week of the month were partly rejected. The yield on 91-day TB de-clined from 7.14 per cent on October 3 to 6.98 per cent on October 10 but rose to 7.10 per cent on October 17 and then fell to 7.02 per cent on October 24. However, the yield jumped to 7.31 per cent on October 31 despite lower amounts being accepted by theRBI. Unlike the 91-day TBs, the yield on 182-dayTB increased from 7.32 per cent on October 3 to 7.45 per cent on October 17 and further to 7.58 per cent on October 31. Contrary to 182-dayTBs, the yield on 364-day TB declined marginally from 7.37 per cent on October 10 to 7.36per cent on October 24 (Tables 8 to 10). Corporate Bond Market: With restric-tions placed on external commercial bor-rowings, the domestic bonds market wit-nessed a sharp improvement in the amount mobilised from Rs 6,165 crore raised in September to Rs 10,636 crore, higher than Table 8: Auctions of 91-Day Treasury Bills(Amount in rupees crore) Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off AmountAuction AmountDevolvedPrice Yeild Outstanding- No Face Value No Face Value on PDs (Rupees) Rate on the Date (Amount)(Amount)(Amount)(%)ofIssue (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)2006 October 4 2000.00 42 2886.01 24 2000.00 0.00 98.38 6.60 35160.86 (2) (2100.00) (2) (2100.00) [98.39] [6.56] October 11 2000.00 44 2510.00 19 1070.00 0.00 98.38 6.60 33730.86 (0) (0.00) (0) (0.00) [98.38] [6.60] October18 2000.00 45 2585.50 15 680.50 0.00 98.37 6.65 32261.36 (2)(600.00)(2)(600.00)[98.37][6.65] October 26 2000.00 36 2466.00 5 651.00 0.00 98.37 6.65 29756.61 (0) (0.00) (0) (0.00) [98.37] [6.65] 2007 October 4 3500.00 92 5383.00 78 3500.00 0.00 98.28 7.02 59853.00 (2)(4000.00)(2)(4000.00)[98.28][7.02] October 10 3500.00 115 13193.00 30 3500.00 0.00 98.29 6.98 62303.00 (2) (1200.00) (2) (1200.00) [98.29] [6.98] October 17 3500.00 119 7672.50 65 3500.00 0.00 98.26 7.10 64403.00 (3) (1100.00) (3) (1100.00) [98.27] [7.06] October 24 3500.00 109 7803.33 59 3500.00 0.00 98.28 7.02 66003.00 (1)(100.00)(1)(100.00)[98.29][6.98] October 31 3500.00 86 3701.78 28 500.00 0.00 98.21 7.31 64684.00 (3) (380.99)(3) (380.99)[98.22] [7.27] Figures in parentheses in cols 3 to 6 represent numbers and amounts of non-competitive bids which are not included in the total. Figures in the square brackets under cols 8 and 9 represent weighted average price and respective yield. Table 9: Auctions of 182-Day Treasury Bills(Amount in rupees crore) Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off AmountAuction AmountDevolvedPriceYieldOutstanding No Face Value No Face Value on PDs (Rupees) Rate on the Date (Amount) (Amount)(Amount) (%)ofIssue2006 October 4 1500.00 33 2446.50 18 1500.00 0.00 96.72 6.80 20706.56 (0) (0.00) (0) (0.00) [96.74] [6.76] October 18 1500.00 30 1140.00 16 620.00 0.00 96.68 6.89 21326.56 (1) (500.00) (1) (500.00) [96.70] [6.84] 2007 October 3 2500.00 71 4990.00 48 2500.00 0.00 96.48 7.32 31141.00 (0) (0.00) (0) (0.00) [96.51] [7.25] October 17 2500.00 97 4815.00 78 2500.00 0.00 96.42 7.45 32117.00 (1) (500.00) (1) (500.00) [96.46] [7.36] October 31 2500.00 75 3165.00 18 500.00 0.00 96.33 7.64 30991.00 (0) (0.00) (0) (0.00) [96.37] [7.55] Figures in the square brackets represent weighted average price and the respective yield. Figures in brackets represent numbers and amounts of non-competitive bids which are not included in the total.Table 10: Auctions of 364-Day Treasury Bills (Amount in rupees crore) Date of Notified Bids Tendered Bids Accepted Subscription Cut-off Cut-off AmountAuction AmountDevolvedPriceYieldOutstanding No Face Value No Face Value on PDs (Rupees) Rate on the Date (Amount) (Amount)(Amount) (%)ofIssue2007 October 11 2000.00 57 4680.00 23 2000.00 0.00 93.55 6.91 43982 (1)(1720.00)(1)(1720.00)[93.56][6.90] October 26 2000.00 56 3415.00 17 1285.00 0.00 93.48 6.99 43267 (0) (0.00) (0) (0.00) [93.49][6.89] 2007 October 10 3000.00 154 11321.50 31 3000.00 0.00 93.15 7.37 58301 (0) (0.00) (0) (0.00) [93.19][7.33] October 24 3000.00 124 8141.00 35 3000.00 0.00 93.16 7.36 60040 (1) (24.00) (1) (24.00) [93.18][7.34] Figures in the square brackets represent weighted average price and the respective yield. Figures in brackets represent numbers and amounts of non-competitive bids which are not included in the total.

MONEY MARKETnovember 24, 2007 Economic & Political Weekly32Appendix Table: Secondary Market Operations in Government Papers: NDS and NDS-OM Deals(Amount in rupees, crore) Descriptions Week Ending October 2007: Yield to Maturity on Actual Trading Total for the Month 26 19 12 5 of October 2007 AMT YTM CY AMT YTM CYAMT YTM CY AMT YTM CYAMT YTM CY1TreasuryBills A91-DayBills 3450.866.642447.896.81 3010.626.70 3032.809.64 11942.177.45 B182-DayBills 1343.756.821582.247.08 1546.216.97 2342.336.96 6814.536.96 C364-DayBills 1946.017.17549.396.88 4603.987.07 3437.007.05 10536.387.07 2 GOI DatedSecurities A Regular(in % Year) 10.80, 2008 ------8.007.5410.55 ---8.007.5410.5510.82,2008 ------8.007.4110.56 ---8.007.4110.5611.50, 2008 ------10.00 7.07 11.21 110.007.5611.23 120.007.52 11.2312.00, 2008 ------0.505.4111.59 ---0.505.4111.5912.25, 2008 ------0.02 9.9312.02 ---0.02 9.9312.025.48, 2009 2395.07 7.635.661190.00 7.73 5.682565.00 7.71 5.683134.50 7.73 5.689284.56 7.70 5.67 6.65,2009 1600.00 7.64 6.74 155.00 7.71 6.75 288.20 7.72 6.75 635.00 7.92 6.77 2678.20 7.72 6.757.00,2009 ------0.02 9.197.24---0.02 9.197.247.07, 2009OMC SB ------10.00 7.917.15---10.00 7.917.15 7.33, 2009 OIL MKT BONDS ------50.00 7.99 7.40 ---50.00 7.99 7.40 5.87, 2010 3975.00 7.67 6.09 3013.02 7.78 6.10 3122.85 7.78108 6.10472 1918.88 7.78 6.11 12029.76 7.74 6.10 6.20, 2010 UTI SB ---20.00 8.17 6.46 40.00 8.17 6.46 ---60.00 8.17 6.467.55, 2010 ------182.05 7.757.5910.00 7.747.58192.05 7.757.59 11.30,2010 882.35 7.72 10.40 148.60 7.79 10.41 362.50 7.80 10.40 5.00 7.80 10.40 1398.45 7.75 10.409.39,2011 70.00 7.738.9365.00 7.79 8.942.347.70 8.91 ---137.347.768.9311.50, 2011 ------0.058.0010.31 ---0.058.0010.3112.32,2011 0.087.8110.93 ---0.207.4710.81 0.42 7.78 10.90 0.70 7.70 10.886.85, 2012 1.008.02 7.16 ---1.007.807.10 ---2.00 7.917.137.40,2012 5.707.737.4955.007.827.5245.007.807.51 - --105.707.817.52 7.44, 2012 OMC SB 5.00 8.40 7.71 10.00 8.45 7.72 ------15.00 8.43 7.72 7.47, 2012 OIL MKT BONDS 25.00 8.28 7.70 10.00 8.25 7.69 ---732.00 8.40 7.73 767.00 8.40 7.73 7.47, 2012 OMC SB ---10.00 8.25 7.69 ------10.00 8.25 7.699.40,2012 1.508.008.91 ---------1.508.008.91 7.27,2013 1861.08 7.75 7.43 210.00 7.84 7.47 297.95 7.84 7.47 535.00 7.83 7.46 2904.03 7.78 7.459.00,2013 ------0.048.128.66---0.048.128.667.37,2014 160.407.807.53146.177.867.55265.007.877.56 - --571.577.857.5510.00, 2014 0.228.099.12 ---6.007.939.05 ---6.227.949.0511.83, 2014 ---0.20 7.91 9.78 ---0.10 7.91 9.78 0.30 7.919.78 7.38,2015 755.35 7.81 7.57 295.35 7.86 7.59 519.00 7.89 7.60 175.00 7.86 7.60 1744.70 7.85 7.5910.79, 2015 0.047.92 9.290.047.989.32 ------0.087.959.3111.43, 2015 ---3.607.939.52 ------3.607.939.52 7.59,2016 105.00 7.82 7.70 4.28 8.05 7.81 20.00 7.88 7.73 20.00 7.87 7.72 149.28 7.84 7.7110.71,2016 0.157.488.934.158.109.24 ------4.308.07 9.237.46,2017 5.017.907.691.307.957.7014.707.937.71 - --21.017.927.70 7.49,2017 5608.95 7.86 7.68 828.42 7.92 7.71 1325.35 7.93 7.71 1686.85 7.90 7.70 9449.57 7.89 7.69 7.99,2017 10459.30 7.84 7.91 4417.96 7.91 7.95 3419.40 7.91 7.95 2505.05 7.89 7.94 20801.70 7.87 7.93 8.07, 2017 1622.26 7.90 7.99 131.19 7.95 8.01 442.46 7.98 8.03 335.20 7.98 8.03 2531.11 7.93 8.00 5.69,2018 5.00 7.97 6.81 4.70 7.99 6.82 2.00 7.98 6.82 ---11.70 7.98 6.81 6.25,2018 34.60 8.12 7.17 9.30 8.13 7.17 13.26 8.13 7.17 5.15 8.26 7.25 62.31 8.14 7.18 12.60, 2018 ON TAP ---0.07 8.05 9.48 ---0.07 8.20 9.57 0.14 8.12 9.525.64, 2019 4.308.066.85 ---5.008.286.97 ---9.308.186.916.05,2019 1.508.107.141.558.117.140.258.167.18 ---3.308.117.1410.03, 2019 ------0.018.108.760.018.208.82 0.02 8.158.796.35,2020 0.108.017.28 ------3.007.997.27 3.107.997.277.94, 2021 ---3.35 8.108.0416.06 8.158.08 ---19.41 8.148.07 8.13, 2021 OMC SB 6.16 8.40 8.31 15.00 8.40 8.31 2.00 8.40 8.31 137.00 8.50 8.38 160.16 8.49 8.3710.25, 2021 ---0.21 8.12 8.73 ---0.05 8.058.69 0.26 8.118.73 8.15, 2022 FCI SB 238.00 8.55 8.43 ------105.00 8.52 8.41 343.00 8.54 8.438.20,2022 50.00 8.128.1471.70 8.17 8.18181.80 8.20 8.2094.50 8.17 8.18398.00 8.178.19 8.35,2022 233.14 8.13 8.20 22.88 8.20 8.25 9.80 8.178.225.008.168.22270.828.148.206.17, 2023 20.008.287.55 ---------20.008.287.55 8.01, 2023 OMC SB 18.00 8.65 8.48 215.50 8.72 8.53 5.00 8.68 8.50 590.00 8.68 8.50 828.50 8.69 8.51 8.03, 2024 FCI SB 1285.00 8.72 8.55 0.50 8.67 8.52 ---8.16 8.58 8.45 1293.66 8.72 8.55 8.20, 2024 OMC SB 3.10 8.59 8.49 254.65 8.72 8.59 5.05 8.68 8.55 750.00 8.68 8.56 1012.80 8.69 8.56 8.40, 2026 OMC SB - - - 0.45 8.61 8.56 0.45 8.65 8.60 4.15 8.58 8.54 5.05 8.59 8.55 8.23, 2027 FCI SB 40.34 8.70 8.61 276.85 8.74 8.64 166.63 8.75 8.65 1709.91 8.80 8.69 2193.73 8.79 8.68 6.01,2028 6.10 8.31 7.75 2.00 8.42 7.84 10.00 8.36 7.79 9.35 8.39 7.81 27.45 8.36 7.796.13, 2028 0.508.45 7.91 ---------0.508.45 7.91 7.95,2032 1327.90 8.33 8.28 689.22 8.42 8.36 455.03 8.44 8.37 1.71 8.39 8.33 2473.86 8.38 8.327.50,2034 4.008.45 8.34 ---0.03 8.638.50 ---4.03 8.45 8.347.40,2035 ------0.308.49 8.37 ---0.308.49 8.37 8.33,2036 1678.80 8.33 8.34 354.10 8.41 8.41 437.00 8.43 8.42 372.72 8.40 8.40 2842.62 8.37 8.37 Sub-total 34494.99 7.88 7.55 12641.31 7.95 7.35 14315.28 7.88 7.16 15598.78 8.06 7.33 77050.37 7.93 7.40B RBI’s OMO: Sales - - - 341.00 - - 113.00 - - 77 - - 531.00 - - Purchase ------------0.00 --Sub-total ---341.00 --113.00 --77.00 --531.00 -- (A+B) 34494.99 7.88 7.55 12982.31 7.95 7.35 14428.28 7.88 7.16 15675.78 8.06 7.33 77581.37 7.87 7.353 MarketRepo 97059.24 81305.85 86248.78 71265.40335879.27 Sub-total 97059.24 81305.85 86248.78 71265.40335879.27 4 State Govt Securities 69.72 8.27 8.72 70.08 8.20 8.68 510.55 8.27 8.32140.88 8.23 8.61791.23 8.268.44 Grand total (1 to 4) 138364.57 98937.76 110348.42 95894.19 443544.95 (-) means no trading. YTM = Yield to maturity in per centage per annum. CY = Current yield in per cent per annum. SGL = (RBI’s) Subsidiary General Ledger. OMO = Open Market Operations. OMC SB= Oil Marketing Companies Special Bonds . NDS = Negotiated Dealing System. OM = Order Matching Segment. (1) Yields are weighted yields, weighted by the amounts of each transaction. (2) Current yield has not been worked out for treasury bills. (3) For Floating Rate Bonds (FRB’s) Current yields are based on the latest half-year yield determined in the auction..

MONEY MARKETEconomic & Political Weekly november 24, 200733that mopped in October 2006 at Rs 4,905 crore. Of the amount raised in October 2007, the bulk of the amount, that is, 76 per cent of the total was mobilised by central public sector undertakings (PSUs) with the Food Corporation of India (FCI) alone account-ing for Rs 4,050 crore (over 38 per cent). In case of issues by banks, there was some softening in the rates of interest offered. For instance, Bank of India offered only 10.40 per cent for its perpetual bond issue with a step up of 50 basis points while for the same paper it had offered 10.55 per cent in July 2007.As part ofSEBI’s efforts to develop the corporate bonds market, in October, it re-ceived confirmations from the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on their prepared-ness for introduction of repos in corporate bonds. Since repos in corporate bonds fall under the regulatory purview of RBI, SEBI has re-quested RBI to initiate action as required. Repos in Corporate BondsTheRBI governor in his mid-term review of credit policy said that as the corporate debt market develops and the RBI is as-sured of availability of fair prices and when an efficient and safe settlement system based on delivery versus payments (DvP) III and “straight through process-ing” (STP) is in place, it would permit market repos in corporate bonds.4 Secondary MarketThe secondary market turnover for gilt-edged securities remained subdued despite huge surfeit of liquidity, as the market participants were apprehensive of RBI’s measures of absorbing liquidity from the market. Though the domestic inflation rate remained below the RBI’s set target range, market participants were con-cerned due to a historic surge in interna-tional crude oil prices. Further, with the impending review of monetary policy, the market sentiments turned cautious. But, following the announcement, yields rose as theRBI increased theCRR though holding all the benchmark rates steady. The weekly average turnover fell from Rs16,422 crore in week ending October 5 to Rs 12,807 crore on October 19 but in the last week ending October 26 as theRBI reduced the notified amount under MSS is-suances as well as partly rejected T-bills bids, the turnover rose to Rs 30,604 crore. In the first week, the yield curve re-mained upward sloping as the short-term yields and long-term yields both firmed up. But in the last week of the month, both the yields eased but long-term yields de-clined more than that on short-term re-sulting in a somewhat flat yield curve. The spread between 7.99 per cent 2017 and 8.33 per cent 2036 narrowed from 52 bps to 50 bps during the month (Graph D, p 30) (see also Appendix Table, p 32). RBI Reverse Repos, OMOs and MSS:De-spite sizeable absorptions under the MSS, ample liquidity in the market resulted in large daily absorptions through LAF reverse repo auctions. In the week ending October 5, the aggregate bids tendered and accepted was of Rs 1,95,770 crore despite MSS absorp-tion, which bulged to Rs 2,69,830 crore in the next week ending October 12 despite dated securities as well asMSS auctions. In this week, the reverse repo bids tendered and accepted touched a peak of Rs 69,620 crore on a day. After the SEBI proposal for investment restrictions was issued, the size of bids declined to Rs 1,82,170 crore in week ending October 19 and further to Rs 1,48,930 crore in week ending October 26. On Oc-tober 30, the bids tendered and accepted fell to a low of Rs 3,890 crore but rose again toRs5,015 crore on October 31 (Table 11). In October, the turnover in repos outside RBI declined to Rs 3,35,879 crore from Rs 4,26,527 crore in September and Rs 4,81,566 crore in August albeit at a moderate average rate of 5.83 per cent as compared with 6.25 per cent in September and a lower rate of 5.31 per cent in August (Table 12).Commercial Bonds:The traded amount in October has been the highest at Rs 14,219 crore in the current fiscal year so far, as per the data reported by the SEBI compris-ing the reported and traded data on NSE, BSE and Fimmda. Of the total trades, BSE accounts for 44 per cent and NSE for 25 per cent while the rest is reported on Fimmda. Of the traded corporate debt securities on NSE, the highest turnover was recorded in taxablePSU bonds of Rs 706 crore in October as compared with Rs 295 crore in September. Table 12: Repo Transactions in Government Paper @ (Other than with the RBI) - October 2007 (in rupees, crore)Repo Period in Amount Range of Interest Number of Days (Rupees, Crore) (Per Cent per annum) 1 229362.90 1.00-6.10 (5.83) 2 17366.79 3.00-6.25 (5.96) 3 89065.45 1.25-6.20(5.80) 4 5.10 5.90(5.90) 5 75.00 5.90-6.05 (5.95) 90 4 9.05(9.05)All Issues 1-90 335879.24 1.00-9.05 (5.83) [1-153] [426526.85] [0.25-8.75] [6.25]@ cover all types of securities Figures in round brackets are weighted average interest rate; in square bracket, the figure represents the previous month’s turnover/interest rate.Table 11: Operations of RBI’s Liquidity Adjustment Facility** (Amount in Rupees in crore) For the Week Range of Repo (Injection) * Reverse Repo (Absorption) * Net Injection Net(Sept-Oct 2007) Repo / RR Period Bids Received Bids Accepted Bids Received Bids Accepted (+)/ Outstanding Days Number Amount Number Amount Number Amount Number Amount Daily Absorption (-) Amount Averages of of Liquidity at the BidsWeekEnd@ Accepted 1 2 3 4 5 6 7 8 9 1011121301 Sept - 07 Sept 07 1-3 0 0 0 0 104 174235 104 174235 34847 -174235 3509010 Sept - 14 Sept 07 1-3 0 0 0 0 96 105605 96 105605 21121 -105605 1571017 Sept - 21 Sept 07 1-3 1 1200 1 1200 24 21765 24 21765 4353 -20565 -120024 Sept - 28 Sept 07 1-3 13 9735 13 9735 60 85285 60 85285 17057 -75550 -607001 Oct - 05 Oct 07 1-3 0 0 0 0 124 195770 124 195770 39154 -195770 5437Oct - 12 Oct 07 1-3 0 0 0 0 190 269830 190 269830 53966 -269830 3654515 Oct - 19 Oct 07 1-3 0 0 0 0 128 182170 128 182170 36434 -182170 3195022 Oct - 26 Oct 07 1-3 0 0 0 0 137 148930 137 148930 29786 -148930 1813529 Oct - 02 Nov 07 1-3 0 0 0 0 43 46265 43 46265 9253 -46265 7195* with effect from March 31,2007 the Repo Rate is 7.75 per cent and Reverse Repo Rate 6.00 per cent. ** Includes Second LAF Auctions under Repo and Reverse Repo. With effect from August 06,2007 RBI withdrawn Second LAF auctions which conducted on a daily basis, also withdrawn the cap on daily reverse repo absorptions under LAF and second LAF. @ Net of Repo and Reverse Repo Outstandings.