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Informist, Wednesday, Dec. 4, 2024

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended lower as traders received fixed rates before the Reserve Bank of India's Monetary Policy Committee meeting outcome Friday, dealers said. However, the five-year swap rate was unable to break the 5.99% level on the lower end, as traders remained cautious about the outcome of the rate-setting panel's three-day meeting.

The one-year swap rate ended at 6.31%, its lowest level since Sept. 12, 2022, against 6.33% on Tuesday. The five-year swap rate settled at 6.00%, its lowest level in over two months, compared with 6.02% Tuesday. Both swaps traded in a narrow range through the day. 

Though bond prices surged as traders bet on a 25-basis-point repo rate cut Friday, the sharp reaction did not translate to swap rates as a potential rate cut had already been priced in, dealers said. Swap rates were largely in the same range seen Monday and Friday after the lower-than-view Jul-Sept GDP growth figure. India's Jul-Sept GDP growth was at a seven-quarter low of 5.4%, against an Informist poll estimate of 6.5%, and traders' estimates of 6.3-6.5%.

Some traders said there was no major movement in rates because those who had wanted to receive fixed rates had already done so in the past two trading sessions. Others said there was still appetite for receiving fixed rates, but it needed fresh cues on India's interest rate trajectory.

Higher-than-view CPI inflation for October had earlier dampened hopes of a December rate cut. With inflation still well above the RBI's 4% aim, traders remain divided on whether the central bank would cut the repo rate by 25 bps or choose to inject durable liquidity into the financial system, or both. The three-day meeting of the rate-setting panel began Wednesday. Traders are pricing in a 25-50 bps cut in the cash reserve ratio, which is currently 4.50%. Other liquidity-easing measures the RBI could use were longer-term variable rate repo auctions or purchase of gilts through open market operations, dealers said.

"There could be a cut in CRR, or a policy rate cut. Both chances are on the table, so traders are cautious," a dealer at a private bank said. "Mr. Das (RBI Governor Shaktikanta Das) is also seen to be hawkish, so traders are waiting for any sort of confirmation of the rumours of another governor being appointed."

Swap rates were lower than Tuesday's close for the entire trading session, possibly due to foreign inflows, dealers said. However, the intraday rise in US Treasury yields deterred traders from aggressively receiving fixed rates later in the day, they said. The yield on the 10-year US Treasury note rose to 4.26% at 1700 IST from 4.23% at 0900 IST.

"Offshore traders were receiving today, but US yields rose intraday, so activity was limited," a dealer at another private bank said.

OUTLOOK

On Thursday, swap rates may open steady as traders may remain cautious ahead of the Monetary Policy Committee meeting outcome Friday, and trade volumes may decline. There may be a downside bias in OIS rates due to bets on a repo rate cut, but any fall may be limited as swap rates have hit psychologically crucial levels which may be hard to break, dealers said.

Domestic traders will also look out for news on geopolitical tensions, dealers said. The movement of US Treasury yields will also be closely watched after the comments of US Federal Reserve Chair Jerome Powell past midnight, dealers said. The swap rate in the one-year segment is seen at 6.26-6.36% and in the five-year segment at 5.95-6.05%.

End

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

Edited by Rajeev Pai

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