RBI introduces IRFs on money market instruments

The Reserve Bank of India (RBI) on Friday said interest rate futures (IRFs) can be drawn on any money market benchmark, from the earlier 91-day treasury bills.

IRFs help in hedging against daily yield volatility in fixed rated instrument.

In its first bi-monthly monetary policy on April 5, RBI had said it would be introducing IRF on overnight call money rate.

IRFs are also available on dated securities between four years and eight years, and 11-15 years.

“It is important to develop such market segments, which could signal expectations of market participants, while allowing hedging of asset-liability mismatches,” the central bank had said in its policy statement.

On Friday, RBI said it introduced IRFs “based on any rupee denominated money market interest rate or money market instrument on Securities and Exchange Board of India (Sebi)-authorised stock exchanges.”

Exchanges are “free to select the underlying instrument or interest rate and structure other details of the contracts,” provided they take the permission of the central bank and Sebi. 

The IRFs would be cash settled in rupees or as approved by RBI, the notification said.