MUMBAI, Aug 12: The government on Tuesday announced the conversion of special securities worth Rs 5,000 crore into 11.19 per cent gilts maturing in 2005. The announcement had little effect in the securities market, dealers said.

Analysts said the conversion will help the Reserve Bank of India when it kicks off its open market operations once the government borrowing programme is through.

The central bank had earlier fixed the yield on the eight-year paper at 11.19 per cent. The government collected Rs 3,000 crore through the auction.Special securities are low interest-bearing stocks held by the central bank.

According to analysts, Reserve Bank holds special securities of about Rs 1,06,610 crore. The apex bank had indicated that it will use the securities to conduct open market operations at a later stage. Some of these securities carry a low interest rate of 4.6 per cent.

The conversion, analysts say, will not result in any increase in RBI credit to the central government. "No inflationary pressures will be created as there will not be any rise in the RBI credit to the central government," a debt analyst at a leading brokerage said.

This is the third time that the central government has announced the conversion of special securities into marketable lots. Earlier, it converted Rs 5,000 crore into 13.05 per cent gilts maturing in 2007 and another Rs 5,000 crore into 12.59 per cent gilts maturing in 2004.

The central bank is yet to put these securities on the sale list. "The apex bank knows that these securities are attractive and will be sold in no time. But the central bank will not put out these securities unless the government borrowing programme is complete," a dealer said.

"We expect the RBI to start its open market operations in the second half of the financial year. The conversion of low-yielding securities to market-related yields will help strengthen the central bank's portfolio," a debt analyst said. Reserve Bank has indicated that it wants to use the bank rate and the open market operations as signals for interest rate movements.

RBI deputy governor YV Reddy had said that the ad hoc treasury bills outstanding as on March 31, 1997, would be funded into special securities.

"These securities, in addition to the funded securities worth Rs 71,000 crore in the RBI books, will continue to be held by the central bank. At a later stage, it may have to use the securities for its open market operations by converting them into marketable lots," Reddy said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.