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Informist, Friday, Oct. 11, 2024

By Aaryan Khanna

MUMBAI – Overnight indexed swap rates ended higher as offshore traders persistently paying fixed rates due to geopolitical tensions in West Asia, dealers said. Domestic traders likely received fixed rates at levels they considered lucrative.

The one-year swap rate ended at 6.44% against 6.42% on Thursday. The five-year swap rate settled at 6.17%, against the previous close of 6.16%.

Hopes of rate cuts in India have receded despite the Reserve Bank of India's Monetary Policy Committee unanimously changing its policy stance to 'neutral' from 'withdrawal of accommodation' this week. The MPC might not be comfortable cutting rates if there is an upswing in crude prices and supply shocks return due to escalating tensions in West Asia. Brent crude for December delivery, which fell below $70 a barrel last week, was trading at around $79 a barrel during Indian market hours Friday. This has particularly led to caution among offshore investors, with more certainty on rate cuts in other emerging markets, dealers said. 

"Offshore guys are not touching rupee markets right now," a dealer at a primary dealership said. "The rise in crude prices does nothing for domestic inflation, but it sure leads to offshore guys pulling out, and that's what impacts the market." 

However, the rise in OIS rates was marginal as domestic traders bet on a quicker pace of rate cuts. Some traders held on to their bets of a December rate cut, as well the MPC opting to cut interest rates further in either February or April, dealers said.

Traders also said the comments from RBI Governor Shaktikanta Das on Wednesday marked a pivot in monetary policy, despite the governor's denying that. While near-term inflation pressures in India are likely to remain high, the governor's comments that food inflation is likely to cool off after Oct-Dec suggest comfort in easing policy in the future, dealers said. India's CPI inflation in September is seen at 5.1%, against 3.65% in August, according to an Informist poll of 17 economists.

"It's a good level to receive here since the market has corrected," a dealer at a private bank said. "Once the geopolitical situation calms down we should be back to levels we saw a few weeks ago, 20 basis points lower (on the five-year swap)."

OUTLOOK

Swaps are not traded on Saturday. OIS rates may take cues on Monday from the movement in US Treasury yields and crude oil prices, dealers said.

The developments in West Asia are also likely to lend cues. The swap rate in the one-year segment is seen at 6.35-6.55% and in the five-year segment at 6.10-6.25% on Monday.

End

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

Edited by Saji George Titus

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