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Informist, Friday, Nov. 29, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended sharply down as onshore traders received fixed rates after India's GDP Jul-Sept data firmed up expectation of a rate cut at the December meeting of the Reserve Bank of India, dealers said. Volumes in the swap market, which were tepid earlier, rose soon after the release of domestic GDP data at 1600 IST, dealers said. 

The one-year swap rate ended at 6.36%, the lowest since September 26, against 6.51% on Thursday. The five-year swap rate settled at 6.04%, the lowest level since October 1, compared to 6.17% on Thursday.

India's GDP growth fell sharply to a seven-quarter low of 5.4% in the quarter ended September due to a slump in the growth of industrial activity, data released by the National Statistical Office on Friday showed. The Indian economy had grown 8.1% a year ago and 6.7% a quarter ago.

The GDP print was sharply below expectations. According to an Informist poll, GDP growth was seen slowing to 6.5% in Jul-Sept. GDP growth in Jul-Sept was also much lower than the Reserve Bank of India's projection of 7.0%.

"GDP data for the Jul-Sept quarter increased the odds of a rate cut at the December MPC (Monetary Policy Committee) meeting. I feel that the market hasn't reacted, there is still good scope for reaction," a dealer at a private bank said. "Yes, the market was expecting a lower GDP data but such a sharp fall was not expected.

Traders had been awaiting the data to get direction on the trajectory of rate cuts in India. The market had widely expected the Reserve Bank of India's Monetary Policy Committee to cut rates in February, but some traders had hopes of a December rate cut if the data comes near 6%. Republican Donald Trump, whose economic policies are seen as inflationary, winning the US presidential election, coupled with a 14-month-high CPI reading of 6.21%, dashed hope of a rate cut by the MPC in December.

Some domestic traders unwound bets placed by them before the release of GDP data, dealers said. "Many people who had paid earlier are now unwinding their positions because the data was much lower than market consensus," a dealer at another private bank said. "It is a positioning exodus, those who had already received are seeing a good profit."

RBI officials, including Governor Shaktikanta Das, had maintained India's economic growth has been resilient in recent comments. With the sharp slowdown in growth – India's Apr-Jun GDP growth was 6.7% – the RBI's rate-setting panel may cut the policy rate repo of 6.50% by 25 basis points, dealers said. At the previous meeting in October, only external member Nagesh Kumar had voted for a rate cut.

In the initial half, volumes in swap rates were muted as traders remained on the sidelines on caution ahead of the India GDP data for the quarter ended in September, dealers said. The volumes were also muted due to little cues from the global front as US markets were shut on Thursday, dealers said.

The yield on the 10-year benchmark US Treasury note fell to 4.21% in European market hours from 4.26% at settlement Wednesday. Treasury yields were slightly lower on Friday, as US markets head for a shortened trading day following the Thanksgiving holiday.

OUTLOOK

Money markets will be closed on Saturday. On Monday, swap rates may open lower as traders may continue to bet on the timeline of a rate cut in India after lower-than-expected GDP data for the quarter ended September, dealers said. 

The market remains divisive on the timeline of rate cuts on the domestic front. While a majority of traders now expect the RBI's rate setting panel to cut rates in December, a few still expect rate cuts to happen in February due to sticky inflation, dealers said. 

Domestic traders will also look out for further news on geopolitical tensions, dealers said. The movement of US yields will also be closely watched, dealers said. 

The swap rate in the one-year segment is seen at 6.35-6.47% and in the five-year segment at 5.98-6.10%.

End

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

Edited by Deepshikha Bhardwaj

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