Reserve Bank of India executive director Usha Thorat said the central bank has enough 'ammunition' to manage the cash glut in the money market.

"There have been some doubts as to whether RBI has the instruments to manage liquidity when the inflows are higher. All that can be said is that there is enough ammunition with the RBI to manage excess liquidity," Thorat told a debt investors meet on Saturday.

Dollar purchases by the RBI to curb inordinate rise in the rupee has resulted excess supply of rupees in the money market.

As a result, too much money has been chasing too few avenues to park funds -- and government security yields have crashed.

Thorat said the central bank would better manage funds supply if it was allowed to issue its own bonds.

"Legislative changes would certainly enable the RBI to issue its own bills and bonds which is currently prohibited under the RBI Act."

The RBI utilises the daily and fortnightly liquidity adjustment facility, where banks can park surplus funds at the central bank's benchmark repo rate of five per cent, to regulate the supply of cash.

The surfeit of cash last week resulted in the subscriptions to these repo auction going through the roof.

Thorat said the central bank had recently acted to check a major source of foreign exchange inflows, contributing to higher domestic money market liquidity.

"After having observed a surge in non-resident external rupee deposits in the first quarter, RBI had to cap the interest rates on such deposits and it is expected that the inflows under this head will slow down."

Last month, the RBI set a maximum ceiling of 250 basis points above Libor on the interest rate offered by banks to expatriates' deposits made under the popular NRE category.

The move was aimed at cutting the attractive rate advantage that these deposits gave expatriate investors even after hedging.

Thorat said the debt market has a significant role to play in restructuring of loss making state level public sector undertakings and various states' contribution for infrastructure financing.

She, however, added a word of a caution for the debt investors stating that higher fiscal deficit in the United States and rising new debt issuances have driven yields higher in US and other countries which seems to indicate uncertainty in the global bond market while clear signals on economic recovery are yet to surface.

While expressing hope on good agricultural production, she said non-food credit in the domestic market has been low and issuance of debt is primarily aimed at replacing high-cost existing debt.