RBI moots for further measures in financial markets

Mumbai, May 31 (UNI) In order to strengthen the process of integration across various segments, the Reserve Bank of India (RBI) today underlined the need for appropriate risk management strategies as also greater coordination and information sharing among central banks to prevent the transmission of adverse developments abroad.

The RBI in its annual report on Currency and Finance 2005-06, stated that financial markets in India have acquired greater depth and liquidity. In the process, various market segments have also become better integrated over the years. Sharp improvement in correlations between the reverse repo rate and money market rates in recent years implies enhanced effectiveness of monetary policy transmission mechanism.

However, the equity market has relatively low correlation with other market segments. Evidence suggests that growing integration amongst various financial market segments in India has been accompanied by lower volatility of interest rates, the RBI said.

The report emphasised that India's international integration is growing as the trade and cross border capital flows have shown positive signs. India's trade and financial links with Asia are also growing amidst recent initiatives taken to promote regional cooperation.

Emerging Asia has become the 'growth centre' of the world due to shifting of production base to the region. This is likely to stimulate greater financial integration in the region. India's financial integration within the region and with the international financial markets is likely to increase in future in view of its robust growth prospects, the RBI report said.

UNI