More Stories

Informist, Thursday, Mar. 13, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates reversed an early fall as as an intraday rise in US Treasury yields offset the fall in rates after softer-than-expected India CPI inflation for February cemented bets of at least two more repo rate cuts of 25 basis points each by the Reserve Bank of India's Monetary Policy Committee in 2025, dealers said. 

The one-year swap rate ended at 6.13% after hitting the day's low of 6.10%, compared to 6.12% on Wednesday. The five-year swap ended at 5.97%, up from the day's low of 5.94%, against 5.96% at close on Wednesday.

Successive lower-than-expected CPI prints have brightened the outlook for rate cuts in India, leading to expectations that the MPC could lower interest rates by much more than previously thought. India's CPI inflation fell to a seven-month low of 3.61% in February from 4.26% in January, according to data released Wednesday.

Foreign banks and offshore traders received fixed rates on bets of the MPC cutting rates by at least another 50 basis points in 2025, following the 25-bp rate cut in February, dealers said. "Domestic fundamentals are still strong, so it makes a good case for FPIs to receive in OIS," a dealer at a private bank said. Swap rates have priced in a cut in April, followed by one most likely in June. Swaps are pricing in more than 50 bps of rate cuts within 12 months, though a third rate cut now remains very uncertain, dealers said.

"With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle could be at least 75 basis points, with successive rate cuts in next policy (in) April and June. With an intervening gap in August, the rate cuts cycle could restart from October," SBI Research said in a note after the data release. 

However, an uptick in US Treasury yields during trading hours saw swap rates retrace their earlier fall. The yield on the benchmark 10-year US Treasury note was at 4.34% at 1700 IST from 4.30% at 0900 IST. Despite the lower-than-expected CPI inflation in the US, yields remained high on fears that subsequent inflation prints would be higher on account of the import tariffs imposed by President Donald Trump.

At the day's low, traders unwound their received fixed rate bets taken when the five-year swap rate was at 6.00% or higher earlier this month. Traders also unwound received positions in swap rates to reduce risk ahead of the long weekend. Indian money markets are shut on Friday for Holi. However, weighted average rates remained low as the activity in the latter half of the day thinned out, and traders took the opportunity to receive at higher rates, confident that swap rates would fall in the next few weeks, dealers said.

OUTLOOK

Indian equity and money markets are shut on Friday for Holi. Swap rates are not traded Saturday. On Monday, swap rates may take cues from the movement in US Treasury yields at open after the release of US weekly jobless claims, dealers said. While swap rates have not been closely tracking the movement of US Treasury yields, traders may take cues from offshore ahead of the US Federal Open Market Committee's meeting next week.

The FOMC, which is scheduled to meet on Mar. 18-19, is expected to hold rates steady this month. However, Fed fund futures are pricing in three rate cuts by the panel in 2025, so traders will closely watch for commentary from the committee, particularly US Federal Reserve Chair Jerome Powell.

Any statement by Trump on tariffs and their potential impact on global trade may also impact swap rates. Trump has said he will impose reciprocal tariffs on imports from countries such as India starting Apr. 2. Short-term swaps will closely track the movement in overnight Mumbai Interbank Offer Rates.

Crude oil prices could also be a trigger for swaps if they move significantly, dealers said. A sharp movement of the rupee against the dollar could also give cues to swaps. The one-year swap rate is seen at 6.08-6.20% and the five-year rate is seen at 5.90-6.03%.

End

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

Edited by Saji George Titus

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.