Tuesday, July 15, 2008

Why is the RBI concerned about the frenetic activity in the OIS market now?

OIS stands for Overnight Index Swap. To get a grip over the concept read this noting we made sometime back.

India's OIS market is unregulated. These deals, which do not cause any flow of funds into or outside the country, are not reported, unlike foreign institutional trading activity in stock or bond markets.

Offshore hedge funds operating through multinational banks in India have stepped up action in India’s OIS market in recent months. These players are convinced that rates will rise, even as the economy is showing signs of slowing down.

Concerned that this surge in hedge fund activity in OIS is boosting volatility in interest rates, the RBI is making inquiries with multinational banks about exposures of such funds in this market.