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Our Bureau

Mumbai , March 30

THE availability of interest rate carry would provide a hedge for primary dealers against hardening interest rates, a study by Crisil has revealed.

According to Crisil, the availability of interest rate carry would help in keeping the bottom line of PDs in the black if the interest rate hikes are within acceptable limits.

"Besides, the potential structural changes expected in the debt markets like the deepening of the repo markets would aid the credit profile of PDs and significantly mitigate the effect of the expected reduction in access to call money borrowings for PDs going forward on account of the RBI's long term vision of transforming the call market to a purely inter-bank market," Crisil said.

Apart from declining interest rates, interest rate carry - the interest rate spread earned because of the difference between long-term and short-term rates — has also boosted the PDs' profitability.

Positive structural measures like real-time gross settlement (RTGS), delivery versus payment-III (DVP III) and modifications to interest rate futures, which are expected in the medium term, will lower interest rate risks, increase liquidity, deepen the debt markets and favourably impact the PDs' credit profile, Crisil said.

More Stories on : Interest Rates | Debt Market

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