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Informist, Thursday, Aug. 21, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended steady Thursday as the minutes of policy reviews in India and the US failed to lend fresh insight into the rate trajectory in either country, dealers said. Offshore participants were largely receiving fixed rates, though in small quantum, while some domestic traders paid fixed rates to hedge their government bond holdings, they said.

 

The one-year swap rate ended at 5.52%, against 5.53% on Wednesday. The five-year swap rate ended at 5.73%, against 5.72% Wednesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform fell to INR 240.95 billion from INR 413.80 billion in the previous session.

 

Volumes were muted as dealers said there was very little to trade on in the minutes of the US and India rate-setting panels. The minutes of the Reserve Bank of India's Monetary Policy Committee's August meeting, released post market hours Wednesday, did little to change traders' views on the rate cut cycle. External members including Ram Singh and Nagesh Kumar seemed to favour further rate cuts while others such as RBI Deputy Governor Poonam Gupta did not see "the scope or rationale for a further policy rate cut at this point".

 

The minutes of the US Federal Open Market Committee's July meeting also had little impact on swaps, especially since US Treasury yields were largely unchanged after the release. The yield on the benchmark 10-year US Treasury note was 4.30% at 1700 IST, slightly down from 4.32% at the same time Wednesday. The minutes indicated the panel was more concerned about inflation over growth, but traders dismissed the FOMC minutes with the view that they were outdated, since the meeting was held before the release of the poor US jobs report for July.

 

"FOMC minutes are not of any importance because US yields also did not react to it," a dealer at a private sector bank said. "As for our (MPC) minutes, Ranjan was slightly pro-rates but he's anyway not going to be in the next policy so nothing new for us."

 

The RBI allocated the Monetary Policy Department to Executive Director Indranil Bhattacharyya last week, suggesting the MPC could see a new member at the October meeting. The Monetary Policy Department was previously allocated to Executive Director Rajiv Ranjan, currently the third ex-officio member of the MPC.

 

Traders said the scope for trading gains was greater in the gilt market, and were more attentive there, rather than in the swaps. Offshore flows were also meagre in quantum, and some dealers said foreign flows were unlikely since total traded amounts were low. The next cue for rates is India's GDP growth for Apr-Jun next week. Until then, swaps are seen steady with the one-year swap reflecting only a small chance of an Oct-Dec rate cut. State Bank of India's economists forecast India's real GDP growth in the Apr-Jun quarter at 6.8-7.0%, higher than the RBI's forecast of 6.5%.

 

"We've seen like a 10 bps rise in OIS from last week, so whatever positions people had for (lower-than-view) GDP or rate cuts, they're unwound already," said a dealer at another private sector bank. "For anyone who thinks that we're not getting any more rate cuts it's a good chance to pay across the curve."

 

However, as some rate cut hopes persist, traders do not see the five-year swap rate crossing above the psychological crucial 5.78% level in the near-term, and is likely to trade in a narrow range of 5.70-5.75%, dealers said.

   

OUTLOOK
On Friday, swap rates will track the overnight movement in US Treasury yields after the release of weekly jobless claims in the US for the week ended Saturday, dealers said. Caution before US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium Friday and ahead of the weekend, may limit trade activity, they said.

 

Swap rates will only indirectly track Powell's comments through the movement of US yields. Powell's comments will be tracked for any indication of a rate cut by the US FOMC in September, which is widely expected by dealers.

 

Next week, volumes may be muted due to lack of major trading cues until India's GDP growth for Apr-Jun is released on Aug. 29. Several traders may also be on leave due to Ganesh Chaturthi celebrations in Mumbai. The outlook on GDP growth is mixed, with some expecting a print higher than RBI's forecast of 6.5%, due to a strong monsoon and a favourable base. In an interview with CNBC-TV18 Thursday, MPC member Saugata Bhattacharya also noted a low GDP deflator may drive up real GDP growth in the June quarter. Other traders expect a lower print due to weak credit offtake and corporate earnings.

 

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% Friday. The five-year contract is seen at 5.68-5.80%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.52%	5.53%
2-year OIS	5.49%	5.48%
5-year OIS	5.73%	5.72%
2-year MIFOR	6.02%	5.99%
5-year MIFOR	6.27%	6.24%

 

End

 

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

 

With inputs from Aaryan Khanna

Edited by Ashish Shirke

 

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