) growth declined over the regimes though volatility of m3 increased slightly during the multiple indicators regime reflecting emerging importance of interest rate in monetary transmission. the shift in operating objective to stabilise overnight interest rate so that it transmits through the term structure is reflected in a discernible reduction in the overnight interest rate with lower volatility. fifth, exchange rate, on an average, has depreciated successively both in nominal and real terms. however, it has become more stable during the multiple indicators it may, however, be noted that in the pre - monetary targeting period, higher inflation volatility was also significantly contributed by the two major oil price shocks. approach than the monetary targeting regime. this could be partly attributed to accumulation of reserves and management of exchange rate to contain volatility. sixth, the improved performance of monetary policy was facilitated by supportive fiscal policy – discontinuation of the practice of automatic monetisation and rulebased deficit reduction programme under the fiscal responsibility and budget management ( frbm ) act – which enhanced instrument independence of the reserve bank. finally, the recent overall improvement in macroeconomic performance cannot be ascribed to monetary policy alone. apart from a rule - based fiscal policy, productivity enhancing structural reforms, sharp increase in saving and investment, increasing integration with the global economy, a low global inflation environment and the unleashing of the entrepreneurial spirit of the private sector played an important role.

accordingly displays kinks, reflecting the liquidity premium commanded by select securities / tenors. to a certain extent, this is the result of the market microstructure in india, dominated as it is by ‘ buy and hold ’ and ‘ long only ’ investors. we need to develop a yield curve that is liquid across tenors. 26. second, expansion of the investor base is key to further development of the market. the rbi, together with the government, is making efforts to enable international settlement of transactions in g - secs through international central securities depositories ( icsds ). once operationalized, 4 / 5 bis central bankers'speeches this will enhance access of non - residents to the g - secs market, as will the inclusion of indian gsecs in global bond indices, for which efforts are ongoing. to encourage direct retail participation in g - secs, rbi has announced the ‘ retail direct ’ scheme, a one - stop solution to facilitate investment in government securities by individual investors. 27. third, liquidity in g - secs market tends to dry up during periods of rising interest rates or in times of uncertainty. while the market for ‘ special repo ’ facilitates borrowing of securities, it is worthwhile to consider other alternatives that ensure adequate supply of securities to the market across the spectrum of maturities. it may be recalled that discussions were held on the introduction of securities lending and borrowing mechanism ( slbm ) with a view to augment secondary market liquidity, by incentivizing ‘ buy and hold ’ type of investors ( e. g., insurance companies, pension funds ) to make available their securities to other market participants. useful feedback was received on the subject from the fimmda and the pdai. i would urge that these discussions be carried forward with a view to evolving market - based mechanisms that enable the lending and borrowing of securities as part of overall market development. 28. fourth, the interest rate derivatives ( ird ) market has developed over the years with the availability of a wide range of products. the only major liquid product, however, continues to be the mumbai interbank offer rate ( mibor ) based overnight indexed swaps ( ois ) market. participation in the ird markets is also largely limited to foreign banks, private sector banks and primary dealers. i am happy to note that based on rbi directions, fimmda formulated the operational guidelines for trade in swaptions in consultation with market participants and trading in swap