Theoretically, lower interest rates will allow for a weaker exchange rate because of the narrowing of interest rate differentials which make it less attractive for foreigners to buy interest-bearing securities. But because of the inflationary impacts of the low interest rates and the weaker currency, fiscal policy needs to compensate for this by reducing expenditure and providing the additional policy instrument.
Under DVP III, both the funds and the securities legs are settled for the net amounts.) Outlook for development of corporate debt market Patil Committee has recommended two important measures to be initiated by the Government, namely rationalization of stamp-duty, and abolition of tax deduction at source, as in the case of government securities. Hopefully, these would be acted upon soon.