Benchmark For G-Secs Market In The Offing

Mumbai, Aug 30: | Updated: Aug 31 2002, 05:30am hrs
The Reserve Bank is set to evolve a benchmark for the government securities (G-Sec) market based on the 10-year G-Sec in line with international best practice after studying the practice in at least 11 countries.

RBI studied the practice in Canada, Italy, Japan, Britain, the US, Belgium, France, Germany, The Netherlands, Sweden and Switzerland before selecting the benchmark security, as part of its guiding objective of evolving a benchmark for the debt securities during the reporting year.

The liquidity adjustment facility (LAF) has emerged as the prime instrument for the RBI for managing market liquidity and for setting a corridor for the movement of the short-term rates consistent with policy objectives, during 2001-02.

From May 2001, RBI had shifted to the system of multiple price auctions for repos and reverse repos conducted under LAF. Simultaneously, attempts are being made to develop the term money market, repo and other money market instruments for more balanced growth of various segments of money market, RBI said in its annual report for 2001-02, released here on Friday.

RBI has continued with its thrust adhered to in the recent years to develop an array of instruments to transmit liquidity and interest rate signals to short-term money market in aflexible manner. The objective was to develop a short-term rupee yield curve to enable efficient price discovery and to improve the operational effectiveness of monetary policy.

To deepen and widen the government securities market during the reporting year include elongation of the maturity profile of outstanding securities, development of benchmarks by consolidating new issuances in key maturities, enchancing fungibility and liquidity through consolidation by re-issuing existing loans, promoting retailing of G-Secs and re-introduction of floating rate bonds (FRBs). It has floated Rs 3,000 crore worth of FRBs during the year under review.

During 01-02, PDs absorbed 65 per cent of auctioned primary issues of G-Secs and 83 per cent in T-Bill auctions. The PDs achieved a turnover of Rs 6,52,127 crore, representing 26.9 per cent of outright market deals.

The forex market was generally stable during the year under review. Except for a brief period of uncertainly in May 2001 (on account of pressure on oil prices), in September (after terrorist attacks on the US) and in December (terrorists attack on Parliament).