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Interest Rate Derivatives


An interest rate derivative is an instrument where the underlying asset is the right to pay or receive an (usually notional) amount of money at a given interest rate. In other words, interest rate derivatives are financial instruments based on an underlying financial security whose value is affected by interes rate changes. These products are used by a variety of participants in order to hedge their exposures against adverse interest rate movements. Such instruments are also used for speculation purposes, which broadly serve as an indicator for interest rate expectations. In India, the interest rate derivatives segment is at a growing stage. As of now, the interest rate derivatives permitted by regulatory guidelines in India include

 

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In its Second
In its Second Bi-monthly Monetary Policy, RBI raised the Repo rate by 25 basis points to 6.25%. Consequently, reserve repo rate stands at 6.00% while marginal standing facility (MSF) rate stands at 6.50%.
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Inflation projections
Inflation projections for 2018-19 were revised to 4.8-4.9% in H1 FY19 (4.7-5.1% previously) and 4.7% in H2 FY19 (4.4% previous). Growth projection for FY19 was maintained at 7.4%.
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India Index
India’s Index of Industrial Production (IIP) expanded to 4.9% in April as against growth of 4.4% in the previous month. Nonetheless, broad based sequential downtrend was witnessed in Mining at -21.1%, Manufacturing at -11.2% and Electricity at -1.9%
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India Consumer
India’s Consumer Price-based inflation rose to 4-month high of 4.87% in May compared to 4.58% a month prior. Core CPI accelerated to 6.18% in May from 5.92% a month ago.
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Wholesale inflation
Wholesale inflation accelerated to a 14-month high of 4.43% in May compared to 3.18% in the previous month. While the May print was partly affected by unfavorable base effect, inflationary pressures from fuel and manufactured products also gained pace.
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