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Informist, Friday, Aug 30, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended steady ahead of data on US inflation and India's GDP that may lend cues to interest rates. Traders avoided placing large bets as the US GDP print for Apr-Jun, released Thursday, failed to significantly shift rate expectations in the world's largest economy, dealers said.

The one-year swap rate ended at 6.49%, flat against Thursday's close. The five-year swap rate ended at 6.08%, against 6.07% the previous trading day.

India's GDP growth data for Apr-Jun was scheduled for release at 1730 IST. An Informist poll of 21 economists showed that India's GDP growth likely fell to a five-quarter low of 6.9% on restrained government spending in the June quarter due to the Model Code of Conduct in effect during the General Election. Dealers estimated the GDP growth at 6.5-6.9%, against the RBI's forecast of 7.1%. RBI officials on the Monetary Policy Committee, including Governor Shaktikanta Das, have so far shied away from terming growth anything other than strong.

However, other traders were of the view that any slowdown in growth would allow them to begin placing bets on quicker interest rate cuts in India. A less than 6.5% GDP growth estimate could pull down the full year's growth below 7%, from the RBI's 7.2% projection, dealers said. Such a reading may increase bets of a 75-basis-point repo rate cut cycle over the next 12 months, against only 50 bps currently expected. In data released post market hours, Apr-Jun GDP growth was 6.7% on year.

Traders said the US personal consumption expenditures data could also provide significant cues for a deeper interest rate cut at the upcoming US Federal Open Market Committee policy review. The US Fed's preferred inflation gauge--the core personal consumption expenditures price index--for July rose 0.2% on month, in line with market expectations and did not have a sizeable impact on the US rate view, dealers said.

The notional traded amount in the one-month swap rate contract rose to 65.50 bln rupees, the most since May 15, though the swap rate was largely unchanged. This was likely a corporate house or other investor hedging its interest rate exposure in the near-term, similar to trades that happened earlier this week, dealers said. It could also be a trader expressing a near-term view on overnight rates remaining higher in September, they said.

The five-year OIS rate inched up due to a rise in US Treasury yields, dealers said. The yield on the 10-year US Treasury note rose to 3.86% at the end of Indian market hours today from 3.83% on Thursday. US data on Friday showed higher-than-expected economic growth in Apr-Jun. In data released on Thursday, US GDP growth in the June quarter rose to 3.0%, against a provisional estimate and consensus expectation of 2.8%. The reading suggests the US is not close to a recession, which would prompt sharp rate cuts by the US Federal Reserve. 

"The offshore activity lends cues on a daily basis, otherwise, there's really not much happening in the market," a dealer at a primary dealership said.

OUTLOOK

Swap rates are not traded on Saturday. On Monday, OIS rates may fall after India's GDP growth was lower than expected, which may spur rate cut bets by the MPC starting in December, dealers said.

The US personal consumption expenditure data for July was in line with estimates and did not lend significant cues to the US rate trajectory. 

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 6.43-6.58% and in the five-year segment at 6.00-6.18%.

End

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

Edited by Akul Nishant Akhoury

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