Exclusive: India gears up to launch interest rate futures - sources

Fri Oct 18, 2013 12:10pm EDT
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By Archana Narayanan and Suvashree Dey Choudhury

MUMBAI (Reuters) - India plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets, according to several sources involved in the discussions with the central bank.

These interest rate futures would help banks and financial firms in Asia's third-largest economy assess expectations for borrowing costs and hedge the risks of rate changes to their bond portfolios.

It would also provide the country's policymakers with a valuable gauge to measure market expectations for their future rate decisions.

Although the plans are at an advanced stage, the sources said the Reserve Bank of India (RBI) has not yet finalized the structure of the product, which will allow investors to bet on the direction of interest rates. They declined to be identified publicly commenting on the closely-held discussions.

Getting the structure right is critical for the central bank, which failed in two previous attempts in 2003 and 2009 because of what market participants have said were faulty designs.

New RBI Governor Raghuram Rajan has made deepening India's financial markets a priority, in part to prevent trading of derivatives based on domestic products from shifting to overseas markets such as Singapore.

"This product is Rajan's baby so everyone is on their toes to make it a success. It will be launched in a month or two months at the most," said one senior market participant who has been in discussions with the RBI.

In response to a query from Reuters, an RBI spokeswoman said: "We are discussing the product with stakeholders."   Continued...

Raghuram Rajan, newly appointed governor of Reserve Bank of India (RBI), arrives for a news conference at the bank's headquarters in Mumbai September 4, 2013. REUTERS/Danish Siddiqui