India could soon launch interest rate futures

Part of move to deepen its financial markets.

Financial industry sources said India plans to launch trading of government bond futures within the next two months. Interest rate futures will help banks and financial firms assess expectations for borrowing costs and hedge risks of rate changes on their bond portfolios.

It will also provide India’s policymakers with a valuable gauge to measure market expectations for future rate decisions. The Reserve Bank of India, however, has not finalized the structure of the product, which will allow investors to bet on the direction of interest rates..

The central bank failed in two previous attempts in 2003 and 2009 because of what market participants have said were faulty structural designs.

RBI Governor Raghuram Rajan has made deepening India's financial markets a priority to prevent trading of derivatives based on domestic products from shifting to overseas markets.