More Stories

Informist, Wednesday, Jul 24, 2024

By M.C. Adhiinthran

MUMBAI – Overnight indexed swap rates ended lower as offshore traders received fixed rates after the government's fiscal deficit target was revised lower to 4.9% of GDP in the Union Budget for 2024-25 (Apr-Mar) detailed on Tuesday, dealers said. This led to confidence among offshore traders that the government was on the path of fiscal consolidation.   

The one-year swap rate ended at 6.69%, against 6.72% on Tuesday. The five-year swap rate ended at 6.25%, compared with 6.28% the previous trading day. The five-year swap rate was at the lowest level since Feb 8, while the one-year swap rate was at its lowest since Feb 12.

"Lowering the fiscal deficit is good as it instils confidence for offshore guys that there would not be too much splurging," a dealer at a primary dealership said. "Also, unlike G-sec (government securities) guys who were punting on a borrowing cut, fiscal prudence was the main punt here." 

The Budget lowered the fiscal deficit target for the current financial year to 4.9% of GDP from 5.1% in the Interim Budget. The fiscal deficit in 2023-24 was 20 basis points lower than the revised estimate of 5.8% of GDP. The fiscal deficit of 4.9% for 2024-25 is below the consensus estimate of 5.0%. 

On the interest rate front in India, the one-year swap rate factors in a 25-basis-point rate cut in February, dealers said. However, the market expects a policy stance change to 'neutral' from 'withdrawal of accommodation' by October and a rate cut by December.

"The February cut is a sure shot. So people are confident about that bet. December is not a 100% surety, so they are a little hesitant," a dealer at another primary dealership said. "If people were to punt on December, then we should see one-year rates at 6.60%."

A liquidity surplus in the banking system aided the fall in one-year swap rate, dealers said. The liquidity surplus in the banking system was 423.74 bln rupees on Tuesday, data from the Reserve Bank of India showed. Liquidity has been in surplus since the start of July.

Liquidity may slip into a deficit, which may lead to a rise in short-term swap rates, some dealers said. The overnight Mumbai Interbank Offered Rate, which is the floating leg of the OIS, was at 6.79% today, 19 basis points over the month's average of 6.60%.  

OUTLOOK

Swap rates are seen opening steady on Thursday due to lack of firm domestic cues. The market will focus on key economic data from the US for further guidance on rate cuts in that country. The market will assess US GDP advance estimates for Apr-Jun, scheduled to be released on Thursday. Swaps are also likely to take cues from speechs by various US Federal Reserve officials later this week.

Any sharp movement in US Treasury yields and crude oil prices may also lend cues at the opening. The swap rate in the one-year segment is seen at 6.65-6.80% and in the five-year segment at 6.27-6.42%.

End

Reported by M.C. Adhiinthran

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.