RBI to introduce framework for efficient benchmarks in financial markets

RBI to introduce framework for efficient benchmarks in financial markets
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New Delhi, Oct 5: The Reserve Bank of India (RBI) has proposed to introduce a regulatory framework for financial benchmarks which shall apply to benchmarks issued by the Financial Benchmarks of India (FBIL).
FBIL acts as an administrator of the Indian interest rate and foreign exchange benchmarks and aims to introduce and implement policies and procedures to handle the benchmarks.
The central bank’s proposal comes after the controversy surrounding the London Inter-Bank Offer Rate (LIBOR) fixing, following which the International Organization of Securities Commissions (IOSCO) laid down principles of financial benchmarks that provide the overarching framework to ensure robust and credible benchmarks in financial markets. Many regulators across jurisdictions have come up with regulations for financial benchmarks based on these principles. In India, the Report of the Committee on Financial Benchmarks had recommended, among other things, regulatory oversight of benchmark administrators, RBI said.
“Accordingly, to improve the governance of the benchmark processes, it is proposed to introduce a regulatory framework for financial benchmarks which shall apply, initially, to benchmarks issued by the Financial Benchmarks of India Ltd. (FBIL),” RBI said.
The robustness and reliability of financial benchmarks are critical for efficient pricing and valuation of financial instruments. Ensuring the credibility of benchmarks promotes their wider adoption which, in turn, facilitates efficient transmission of price signals in the financial system.
Draft regulations will be issued by the end of October 2018.
RBI Status Quo
In a surprise decision, the Reserve Bank of India (RBI) announced a pause in the key policy repo rate, which stands at 6.50 percent. The decision to pause rates was taken by the six-member Monetary Policy Committee (MPC) after a three-day meet, chaired by RBI Governor Urjit Patel. Of the six members, five voted in favour and one voted against the status quo in the repo rate.
Soon after the policy announcement, the rupee hit a record low breaching the 74/$ mark. A day before the yield on the benchmark 10-year bond jumped to 8.2 percent — the highest in three weeks.
The rupee has slipped about 7 percent in the last two months between the two meetings and brent oil prices have risen 15 percent, which have touched $84 per barrel as against $50 last year.