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Informist, Monday, Aug. 11, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended steady on Monday due to a lack of fresh cues on interest rates. Traders were also cautious on placing large bets ahead of the July CPI inflation data for the US and India, scheduled Tuesday, dealers said.

 

The one-year swap rate ended at 5.51%, flat against Friday's close. The five-year swap rate ended at 5.68%, against 5.67% on Friday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose to INR 247.55 billion from INR 351.10 billion Friday.

 

The US inflation print is likely to lend more direction to domestic swap rates as it may cement hopes of a rate cut by the US Federal Open Market Committee at its next meeting in September, dealers said. Foreign banks unwound received fixed-rate bets in OIS ahead of the print, they said. Recent jobs and economic data have increasingly led to US policymakers considering a rate cut at the next meeting. In July, the FOMC held rates, though two members of the panel voted for a rate cut.

 

According to a Dow Jones poll, US CPI likely rose 0.2% on month and 2.8% on year in July. Core CPI was likely up 0.3% on month and 3.1% on year, the poll said. If the readings come in line with estimates, dealers said domestic swap rates may fall due to offshore traders receiving fixed rates as they firm up a view on US rate cuts. Currently, traders see more than 86% probability of the FOMC lowering the federal funds target range by 25 bps in September, according to the CME's FedWatch tool.

 

"There is nothing new in the market, and I would say people have stuck their neck out in swaps by retaining a rate cut view (in India)," a dealer at a primary dealership said. "Another factor that is playing out is that CPI data tomorrow (Tuesday) in the US and India. The US data could be more important as India inflation is already discounted."

 

Traders did not position aggressively before India's retail inflation at 1600 IST Tuesday. Retail inflation likely fell to a record low of 1.3% in July, mainly because of the statistical effect of a high base and lower food prices, according to an Informist poll. The reading was already factored into OIS rates, as the Reserve Bank of India had also accounted for it, and therefore is unlikely to sway the Monetary Policy Committee's decision on rates, dealers said. Last week, the central bank slashed its headline inflation forecast for the quarter ending September by 130 basis points to 2.1%.

 

Meanwhile, the spread on the five-year benchmark government bond yield over the five-year swap rate widened to nearly 50 bps by the close of trade Monday, the highest level in three months. Since Wednesday, the MPC's rate decision, the spread between the two has widened by over 12 bps. Traders said they prefer to hold their views of one more rate cut in India in Oct-Dec through receiving swap rates maturing up to two years, rather than buying gilts, where yields have climbed due to regular supply of bonds, dealers said. Traders who conducted bond-swap agreements expecting the spread to fall did so in small quantities, they said. 

 

"People are not really taking the bond-swap trade right now. Until next policy, I think the market would prefer to play rate cuts through OIS, and only enter bonds if there's a great opportunity," a dealer at a private-sector bank said. India's GDP release for the June quarter is scheduled on Aug. 29. The RBI forecast GDP growth in the quarter at 6.5%, and traders expect a similar reading.

 

OUTLOOK
OIS rates may open steady as traders keep to the sidelines awaiting fresh rate cues in the form of US and India CPI inflation data for July due Tuesday. Traders are assessing whether India's rate-setting panel will reduce the policy repo rate further, with some hopes diminished after the RBI policy review last week.

 

The MPC's unanimous pause on rates and the RBI's forecasts for growth and inflation in the June quarter of 2026 suggest a high bar for rate cuts. However, traders still see the possibility of the panel cutting rates in Oct-Dec if GDP growth surprises on the downside, particularly with the US imposing a cumulative 50% tariff on Indian goods, dealers said.

 

On the liquidity front, traders have priced in overnight borrowing rates close to the repo rate. Near-term swap rates will track the movement of the overnight Mumbai Interbank Outright Rate, which has been set above 5.40% since Jul. 18.

 

The one-year swap rate is seen in the range of 5.45-5.56% Friday. The five-year contract is seen at 5.64-5.76%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.51%	5.51%
2-year OIS	5.46%	5.46%
5-year OIS	5.68%	5.67%
2-year MIFOR	5.93%	5.90%
5-year MIFOR	6.16%	6.12%

 

End

 

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

 

Edited by Saji George Titus

 

 

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