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Informist, Monday, Sept. 30, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended steady Monday due to a lack of fresh interest rate cues, which kept volumes muted in benchmark contracts, dealers said. Volumes spiked in swap rates maturing up to six months as fears of a delay in the October Monetary Policy Committee meeting faded. 

The one-year swap rate ended at 6.38%, unchanged from Friday's close. The five-year swap rate ended at 6.03%, also the previous close.

News channel NDTV Profit reported Monday that the government had finalised the names of the new external members of the MPC and was likely to announce the new members by Tuesday, citing finance ministry sources. In 2020, the RBI had to shift the dates of the meeting due to a delay in the confirmation of the external members. With the members reportedly finalised, dealers had more certainty that the meeting would not be delayed, as some had feared. The MPC has a quorum of four members, between three RBI members and three external members.

The government had appointed Ashima Goyal, Jayanth Varma, and Shashanka Bhide as external members of the MPC in October 2020 for a period of four years, with their terms expiring on Friday. Two external members of the six-member panel--Goyal and Varma--had voted in favour of a 25-basis-point repo rate cut in August, dissenting with the majority status quo view.

Looking at recent macroeconomic data, traders expect the new MPC external members to also favour a looser policy stance, dealers said. India's headline CPI has fallen below the RBI's 4% target for two months in July and August, albeit due to the statistical effect of a high base that will reverse in September. Moreover, the domestic rate-setting panel may be more comfortable easing policy after the US Federal Open Market Committee cut rates by a higher than expected 50 bps earlier this month, they said.

"There's no excitement, it's just that people have been concerned about a delay, which would have affected swap pricing as on the day of (the policy)," a dealer at a private bank said. "Since broadly there are some easing expectations for the tone, there was some receiving in the near-term rates." 

Meanwhile, the five-year swap rate saw muted volumes despite a see-saw in the US Treasury yield through the day. The yield on the 10-year US Treasury note fell to 3.75% at 0900 IST from 3.78% at the close of Indian markets hours on Friday. However, it was back to 3.78% by 1700 IST Monday.

Traders await crucial data this week on the state of the US economy and further rate cuts by the US Federal Open Market Committee, and avoided large trades on the movement in US yields, dealers said. The US September employment report, which includes non-farm payrolls data, and US purchasing managers' readings are due this week. US Federal Reserve Chair Jerome Powell's will speak at the National Association for Business Economics annual meeting at 2325 IST Monday.

"The market is a bit subdued right now," a dealer at a foreign bank said. "Before the next big directional shift in OIS, people want to be sure where exactly US yields are going to move."

OUTLOOK

On Tuesday, OIS rates may take cues from movement in US Treasury yields and crude oil prices, dealers said. US Fed Chair Powell's speech at 2325 IST Monday may also lend cues.

A fall in India's core sector activity, released after market hours Monday, may spur further bets on domestic monetary policy easing next week, dealers said. In data released at 1700 IST, India's eight core industries growth fell to (-)1.8% on year in August, the lowest since February 2021. This was due to the statistical effect of a high base, though the index also fell 4.2% from the previous month.

The swap rate in the one-year segment is seen at 6.35-6.53% and in the five-year segment at 5.90-6.10%.

End

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

Edited by Akul Nishant Akhoury

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