Volatility in interest rates: its impact and management

Volatility in interest rates has direct and indirect effects on the economy, particularly on businesses. Studies indicate that due to deregulation, following liberalization of economies, the interest rate volatility has surged worldwide, with India among the highest-volatility counties. Hedging in interest rate futures helps stabilize interest costs enabling businesses to remain competitive. Transparency of futures leads to increased lending at market determined rates, moderation of external shocks, better operating decisions, etc. India's maiden effort to start interest rate futures in 2003 failed due to certain inadequacies in product design. Here is an attempt to look at the need for and development of interest rate futures market in India.