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FM sees no rupee convertibility before '09

Chidambaram also said that there was no need to raise interest rates.

india Updated: Apr 07, 2006 10:09 IST

Finance Minister Palaniappan Chidambaram does not expect the rupee to become fully convertible before 2009, he said in an interview with Singapore's Straits Times published on Friday.

"I don't think in any event we will be ready until we can wipe out the revenue deficit and bring down the fiscal deficit to 3 per cent. Which means, not earlier than 2009," Chidambaram said in the interview.

The Indian rupee is only partially convertible and India has in the past set out benchmarks for full capital account convertibility, including levels of fiscal deficit and foreign exchange reserves, inflation and non-performing assets of banks.

A six-person central bank committee began looking into the proposal, made by India's Prime Minister Manmohan Singh last month, and will produce a road map by July 31 this year.

Chidambaram also said in the interview that there was no need to raise interest rates.

Indian bond yields are near four-year highs and analysts said a firm outlook for US rates and rising asset prices in India would put pressure on the Reserve Bank of India (RBI), when it meets on April 18, to tighten monetary policy.

The RBI surprised markets in January by raising a key interest rate by a quarter point to 5.5 per cent to keep a lid on inflation, as well as to avoid excess growth in credit, which has been surging.

"I don't think interest rates should rise," he said. "I think liquidity has eased a bit in the last week and I am confident that RBI will take steps to inject greater liquidity. We should expect an easing of liquidity conditions."

Asked whether he believed that the steep rise in India's stock market had created a bubble, Chidambaram said: "Nothing has been brought to my notice so far."

"As long as there is no disorderly movement in the markets, I have to assume that investors, both buyers and sellers, know what they are doing."

He also said India's stock market regulator, the Securities Exchange Board of India, was keeping an eye on developments.

The stock market climbed to a new closing high on Wednesday, ahead of a public holiday on Thursday, with the 30-share BSE index ending the session at 11,746.90 points, off a new intra-day peak of 11,755.20.

Commenting on free trade agreements, Chidambaram said India should not rush into such a deal with China unless trade between two countries improves, adding that it viewed a free trade agreement with the Association of Southeast Asian Nations (ASEAN) "with great caution".