Development of Financial Markets in India Rakesh Mohan Deputy Governor Reserve Bank of India Lecture at the First Ind

of 26

Please download to get full document.

View again

All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
PDF
26 pages
0 downs
0 views
Share
Description
Development of Financial Markets in India Rakesh Mohan Deputy Governor Reserve Bank of India Lecture at the First Indian-French Financial Forum at Mumbai, May 16, 2007. Scheme of the Presentation. Role of Financial Markets Money Market Government Securities Market
Transcript
Development of Financial Markets in IndiaRakesh MohanDeputy Governor Reserve Bank of IndiaLecture at the First Indian-French Financial Forum at Mumbai, May 16, 2007Scheme of the Presentation
  • Role of Financial Markets
  • Money Market
  • Government Securities Market
  • Foreign Exchange Market
  • Financial Market Integration
  • Role of Financial Markets
  • Intermediate between savers and investors
  • Generate resources for investment and growth
  • Allocate resources efficiently
  • Improve the efficacy of the transmission mechanism of monetary policy
  • Financial Markets in Pre-reform Period – Major Problems
  • Administered Interest rates
  • Limited Instruments
  • Restrictions on Participation
  • Segmentation of Markets
  • Money Market
  • Role of the Money Market
  • Key role in the transmission of monetary policy impulses
  • Major Reforms Introduced
  • Development of the Liquidity Adjustment Facility
  • Development of collateralised instruments – CBLO and Market Repo
  • Modification in issuance norms and maturity profile of CD and CP
  • Setting up of central counter party – Clearing Corporation of India Ltd. (CCIL)
  • Money MarketImpact – Increase in ActivityMoney MarketImpact – Decline in VolatilityMoney MarketImpact – Decline in VolatilityMoney Market Impact – Improvement in Efficiency Government Securities Market
  • Significance of the G-Sec. Market
  • Enables smooth raising of government borrowings
  • Risk free rupee yield curve provides a benchmark for pricing other debt instruments
  • Plays a key role in the monetary policy transmission mechanism
  • Government Securities Market
  • Major Reforms in the G-Sec Market
  • Auction system for issuance of government securities
  • Primary Dealer (PD) system
  • New instruments
  • Widening of investor base
  • Debt consolidation – re-issuance of securities
  • Introduction of short-selling
  • When issued market allowed
  • Strengthening of trading and settlement infrastructure
  • Government Securities Market - ImpactGovernment Securities MarketReasons for the Recent Decline in ActivityGovernment Securities MarketEmergence of Yield Curve Foreign Exchange Market
  • Major Reforms
  • Market-determined exchange rate in 1993
  • Current account convertibility in 1994
  • Substantial liberalisation of capital account transactions
  • Greater flexibility to market participants to undertake foreign exchange operations
  • Improvement in market infrastructure
  • Foreign Exchange MarketIncrease in ActivityTurnover in the Foreign Exchange Market Foreign Exchange Market Increase in Size: Relative Terms Foreign Exchange Market Improvement in EfficiencyForeign Exchange Market Decline in VolatilityFinancial Market Integration
  • Significance
  • For monetary policy transmission framework
  • Evidence of stronger integration during the recent period (2000-2006) than the earlier period (1993-2000)
  • Correlation between the call rate and the reverse repo improved from 0.35 to 0.86
  • Correlation between the call rate and the 364-day Treasury Bills yield improved from 0.40 to 0.92
  • Correlation between the call rate and the 10-year yield improved from 0.46 to 0.88
  • Correlation between the call rate and the 6-months forward premia improved marginally from 0.61 to 0.62
  • Correlation between interest rates (the call rate) and the stock market improved from -0.10 to -0.23.
  • Financial Market Integration Interest Rates and Exchange Rate in IndiaFinancial Market IntegrationInterest Rate Spread over the Reverse Repo RateGrowth of Financial Markets in India – A Comparative PictureTable 6: Depth of Financial Markets in India – Average Daily Turnover(Rs.crore)The Way Ahead - Measures Announced in the Annual Policy StatementG-Sec. Market
  • A ‘Non-Competitive Bidding Scheme’ in the auctions of State Development Loans (SDLs) to be introduced.
  • A system of reissuances of State Government securities to be introduced.
  • Use of average cut-off yield on 182-day Treasury Bills, instead of the yield on 364-day Treasury Bills as a benchmark rate for the FRBs to be issued in future.
  • A Working Group being set up to suggest measures for developing the interest rate futures market.
  • The Way Ahead - Measures Announced in the Annual Policy StatementForeign Exchange Market
  • Further liberalisation of foreign exchange facilities in view of CFCAC
  • Overseas investment limit to be enhanced
  • Portfolio investment abroad limit to be enhanced
  • Increase in the existing limit for prepayment of ECBs
  • The limit for remittance scheme for individuals to be enhanced
  • Expanded the range of hedging tools available to the market participants as also facilitate dynamic hedging by the residents
  • A Working Group on Currency Futures to be set up
  • ThankYou
    Related Search
    Advertisements
    Advertisements
    We Need Your Support
    Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

    Thanks to everyone for your continued support.

    No, Thanks