RBI policy review: Non-residents may be allowed access to domestic IRS mkt

Move aims to develop a deep rupee interest rate swap market that accommodates divergent participants

The Reserve Bank of India (RBI) has proposed to give non-residents access to the domestic interest rate swap (IRS) market.

Interest rate swaps are used as an insurance against adverse movement of bond yields. The relevance of this instrument has come into focus after the recent spike in bond yields. In the December quarter, the 10-year bond yields rose about 70 basis points, and banks had to book huge mark-to-market losses. 

Along with IRS, the RBI will also allow ‘swaptions’, which is a derivative of a derivative (in this case interest rate option). Swaptions, or an option to enter into a swap