i will urge banks to actively use the interest rate derivative products like irs and irf to manage interest rate risk in their portfolio so that the need for seeking regulatory relief during periods of stress could be avoided. bis central bankers ’ speeches 12. when we come to interest rate futures, unlike irs, the experience was not encouraging till the launch of single bond cash settled irf in january 2014. the earlier avatars of irfs contracts did not attract enough market interest mainly due to illiquid securities in the underlying basket leading to fear of receiving illiquid securities in delivery based settlement and complex theoretical calculations for cash settled contracts. taking into account the feedback of the market participants, it was decided to introduce cash settled single bond irf on underlying security with residual maturity between 9 – 10 years. the 10 year single bond irf has received good response from the market as the product is simple to understand and is cash settled. in view of success of cash settled 10 year single bond irf and taking into account the request of market participants, exchanges have been permitted to introduce single bond futures for the 4 – 8 year bucket and 12 – 15 year bucket as well. though the daily average trading volume in irfs has shown consistent growth since its introduction in january 2014, the participation in irf is yet to become broad based ( chart 3 ). 13. we also hope that now the single bond cash settled futures have seen some encouraging response from the market, the exchanges could also consider re - launching futures based on a basket, which could be a much more efficient instrument from a hedging perspective. it could also improve liquidity in some of the illiquid bonds. ready forward facility 14. you all know that reserve bank has been undertaking repo / reverse repo transactions with market participants as part of its monetary and liquidity management since 1992. interbank repo facility in government securities was introduced in 2003. the repo market in g - sec, has witnessed considerable growth during the last 10 years ( chart 4 ). leveraging technology and the availability of a robust clearing and settlement mechanism have been instrumental in the migration of the repo market from a pure otc market to an electronic environment. india is among few countries to have anonymous electronic order matching platform with ccp facility for the repo market. the growth of the repo market is evident from the fact that the daily average trading volume has increased from ₹ 106. 72 billion in 2004 – 05 to ₹ 548. 28 billion

, in the current environment, financial stability has to be viewed not only in terms of lessons from the crisis, but also in terms of the future risks and challenges. there is, thus, a clear recognition of the importance of financial stability policy. however, several questions have arisen, to which we still do not have answers. we may attempt to address at least a few of them. i would like to highlight the prominent ones. first, as increasing number of central banks start including financial stability in their policy mandates along with price stability, we need to consider whether financial stability has to shift from being an implicit variable to an explicit variable of the economic policy. as a recent imf survey ( december 2010 ) pointed out, although financial stability is a formal mandate in most of the countries, the definition of financial stability is informal in almost 80 per cent of the respondents. if financial stability is to be made an explicit objective for central banks, the search for an operational definition and measurment of financial stability come to the forefront. bis central bankers ’ speeches in this context, it is important to recognise that financial stability, difficult enough to define, is even more difficult to measure. though theoretically one would prefer composite indicators of financial stability ( threshold or benchmark values ) over individual variables as indicators of financial system stability, in practical terms, assessments of financial stability revolve around monitoring several indicators conveying about the health of the institutions, markets and infrastructure. considering that the construction of a single aggregate measure of financial stability is a difficult task given the complex nature of financial systems, it would be useful to have an appropriate template and methodology for the key indicators. as an initial step, the imf in december 2010 conducted a stock - taking survey of international experiences with financial stability and the evolving macroprudential policy framework covering 63 countries and european central bank which also include all the g20 countries and those subject to mandatory financial sector assessment program ( fsap ). second, the appropriate role of the central banks in maintaining financial stability and their relationship with other relevant bodies has intensified as new arrangements are being put in place in several countries and being planned in others. under the reformed financial stability framework, the allocation of responsibilities with respect to financial stability and instruments to manage stability are still being rigorously debated worldwide. third, the financial stability mandate for central banks may have implications for monetary policy as well. although a predominant focus on price stability may have yielded low and stable inflation in terms of prices of goods