The role and function of money markets For the signalling channel to operate it is essential that the monetary impulses are transmitted through money market rates. In this regard let me make a number of observations. Fragmentation First, for monetary policy impulses to be transmitted through money market rates, it is important that money markets are not fragmented.
Last time I addressed this workshop, which was in 2013, the backdrop provided by market conditions was quite different from what it is now. At that time, we observed elevated fragmentation in money markets. This related in part to sovereign risks which were prevalent at that time. Since the sovereign debt crisis, the overall levels of fragmentation have receded sharply.