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Informist, Monday, Aug 19, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended steady today ahead of an event-heavy week full of interest rate cues, dealers said. Trade volume was subdued throughout the day.

The one-year swap rate ended at 6.53%, the same as on Friday. There was a notional value of only 20.00 bln rupees traded in the contract, less than a third of its average volume in August. The five-year swap rate ended at 6.12%, against 6.11% the previous trading day. The five-year contract saw 25.20 bln rupees worth of notional trade, against nearly 100 bln rupees in the rest of August.

"There is usually enough activity, especially from offshore, for us to play a range," a dealer at a private bank said. "Today, there is not much traction, but you can't expect it before all the events."

Investors keenly await insights from several US Federal Reserve officials, including Fed Chair Jerome Powell, at the Jackson Hole Economic Symposium later this week to gauge the central bank's stance on interest rates and the broader economic outlook.

According to the CME FedWatch tool, Fed funds futures show only a 26.5% expectation of the US Federal Open Market Committee cutting rates by 50 basis points at its September meeting. The probability had risen to as high as 85% two weeks ago, after a surge in the unemployment rate in the July jobs report triggered fears of a recession in the world's largest economy, needing aggressive rate cuts to counteract it. A 25-bp rate reduction at the next meeting in September is fully priced in, the tool showed.

Investors also look forward to the minutes of the latest Federal Open Market Committee meeting, due at 2330 IST on Wednesday. The minutes may have lower signalling power this time around as the policy review was held before the crucial jobs data print, dealers said.

In India, a change in the six-member Monetary Policy Committee scheduled by its next meeting in October may also limit the impact of minutes due Thursday. External members Jayanth Varma, Ashima Goyal and Shashanka Bhide are due to be replaced in the interim. Varma and Goyal have been the only members of the MPC to vote for rate cuts, during the panel's current extended rate pause that has stretched to nine consecutive policy meetings. The comments from the three members of the RBI, who are scheduled to participate in the October meeting, will be watched to see if they acknowledge risks to growth that may bring forward rate cuts, dealers said.

"Honestly, the minutes for both policies are going to be a sham," a dealer at another private bank said. "In the US, circumstances have changed dramatically for them, while in India all the external members are themselves changing."

OUTLOOK

Swap rates may open steady on Tuesday as traders remain cautious ahead of potentially significant cues on the interest rate view, dealers said. These include minutes from the latest US and India monetary policy reviews, as well as the Jackson Hole Economic Symposium in the US that starts Thursday.

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 6.43-6.63% and in the five-year segment at 6.00-6.25%.

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

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