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Informist, Wednesday, Aug. 20, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended slightly lower due to offshore traders receiving fixed rates, dealers said. The move was limited due to lack of fresh domestic interest rate triggers ahead of minutes of the Reserve Bank of India's Monetary Policy Committee meeting, released after market hours.

 

The one-year swap rate ended at 5.53%, against 5.54% on Tuesday. The five-year swap rate ended at 5.72%, against 5.74% Tuesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform fell to INR 413.80 billion from INR 726.75 billion in the previous session.

 

"Foreign investors have been underweight on India since April-May," a dealer at a private sector bank said. "They are increasing their exposure in a big way using the swaps market, primarily due to better relative value now that rallies in competing markets are over while we have moved the other way." The dealer cited the recent fall in swap rates in Indonesia, where the central bank Wednesday cut its policy rate for the fifth time in a year to its lowest level since 2022.

 

Most of the offshore flows were seen in the two- and five-year swap rates, dealers said. Lack of hedging activity by domestic investors Wednesday also reduced paying pressure in swaps, as the 10-year gilt yield eased 2 basis points to 6.50%. 

 

"Finally the paying pressure has faded in swaps, which has also been due to the rising in the fixing," a dealer at a primary dealership said. "Offshore funds have been on both the paying and receiving side in the last few days in decent size." The overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – was set at 5.52% Wednesday. It has been approaching the policy repo rate of 5.50% over the past few days.

 

Meanwhile, dealers said the one-year swap continued to reflect only a small chance of further repo rate easing in India, in the Oct-Dec quarter. Traders were keen to reassess the outlook on rates after the MPC minutes, released at 1700 IST.

 

Expectations from the minutes remained subdued as traders do not see the panel members' comments on growth and inflation differing from the comments of RBI Governor Sanjay Malhotra on Aug. 6. The RBI's forecasts in Apr-Jun for growth and inflation have largely erased hopes of further repo rate cuts in India. Traders avoided large bets ahead of the release of the minutes, dealers said.

 

OUTLOOK
On Thursday, swap rates are likely to open steady after the MPC minutes were not seen changing the market's view on India's interest rate trajectory, dealers said. The movement in US Treasury yields overnight after the release of minutes of the US Federal Open Market Committee's last meeting may lend cues. Traders will watch out for US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium later in the week for any indication of a rate cut by the US FOMC in September, which is widely expected by dealers. 

 

In the minutes of the MPC's August meeting, some members including Nagesh Kumar seemed to favour further rate cuts, citing the numerous risks to economic growth and employment from the tariffs imposed by the US on India's exports. At the same time, RBI Deputy Governor Poonam Gupta said she did not see "the scope or rationale for a further policy rate cut at this point".

 

While India's goods and services tax reforms are seen reducing inflation, the RBI's MPC is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth, while CPI inflation may be below the RBI's forecast of 3.1% for FY26 by 20-50 basis points, they said.

 

The one-year swap rate is seen in the range of 5.48-5.60% Wednesday. The five-year contract is seen at 5.68-5.80%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.53%	5.54%
2-year OIS	5.48%	5.50%
5-year OIS	5.72%	5.74%
2-year MIFOR	5.99%	6.00%
5-year MIFOR	6.24%	6.25%

 

End

 

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

 

Edited by Avishek Dutta

 

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