The result has been one of the most acute withdrawals in confidence between major institutions in living memory. Inter-bank borrowing rates at term shot up, as global banks, suddenly facing pressure on their own liquidity, became more cautious about extending it to others. Because financial markets are globally integrated, these pressures were quickly transmitted across national borders.
During this phase the Reserve Bank, while suggesting separation, has made it conditional on attainment of three milestones: development of the government securities market, durable fiscal correction and an enabling legislative framework.