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Informist, Wednesday, Sept. 10, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended little changed due to a lack of fresh cues on interest rates, dealers said. The volumes in swap rates in the three- and six-month segment surged as the overnight Mumbai Interbank Outright Rate eased over the past week, leading some traders to reassess their view of the floating leg of their OIS trades.

 

The one-year swap rate ended at 5.47%, against 5.48% Tuesday. The five-year swap rate ended at 5.70%, the same as on Tuesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose to INR 724.75 billion from INR 688.70 billion in the previous session.

 

Traders had begun pricing the overnight MIBOR rate at around 6.50% in their OIS trades due to the Reserve Bank of India's regular intervention to drive up money market rates by conducting sizeable variable rate reverse repo operations since late June. The overnight MIBOR fixing averaged around 5.51?tween Aug. 12 and the end of August.

 

However, the fixing has been set below the policy repo rate of 5.50% on every day of September. Since Sept. 3, the overnight MIBOR has been set at 5.39% or 5.40%. Traders attributed this to the adequate liquidity in the banking system and the RBI not being aggressive in mopping up liquidity through its eight-day VRRR auction on Thursday. The central bank announced an auction of INR 1.50 trillion for Thursday, instead of INR 2.00 trillion as some traders had feared.

 

"People are a bit confused on whether the RBI will maintain the MIBOR at 5.50% or 5.40%, which we have seen for the past week," a dealer at a foreign bank said. "So there should be some investor activity also. It looks like people are tinkering with their hedges or taking structural calls on rates." The notional traded volume in both the three-month and six-month contracts hit record highs of over INR 200 billion each.

 

Other than contracts maturing in under one year, trade volumes were lacklustre in other segments due to a lack of fresh cues. The market has already priced in a policy rate cut by the US Federal Open Market Committee at its meeting next week, and offshore traders have already received fixed rates in the past few weeks, dealers said. The 10-year US Treasury yield was little changed from Tuesday's close, and did not take direction from US government data that showed labour market weakness starting in late 2024.

 

The view on further rate cuts in India remains divided, but largely unchanged from Tuesday. The possibility of another rate cut in India remains less than 50%, which is reflected in swap rates maturing in up to two years, dealers said. They cited the central bank's projections of inflation rising sharply in Jan-Mar and further to 4.9% in Apr-Jun for the Monetary Policy Committee not cutting rates. The rise in real GDP growth to a five-quarter high of 7.8% in the June quarter has also dashed hopes of some traders.

 

Some traders maintain the MPC will cut rates, noting the growth slowdown in the country, particularly after the imposition of the 50% tariff on Indian goods by the US. Even before the tariff hit, the nominal GDP growth in Apr-Jun, at 8.8%, was lower than the recent average of above 10.5%, dealers said. Some traders also retained the view that if the FOMC cuts rates by a jumbo 50 bps in September, it would likely increase bets on rate cuts in India as well as drive OIS rates down further.

 

"There is no interest in the usual tenures. The market is dead," a dealer at a private sector bank said. "There was nothing happening today (Wednesday) except for whatever is up with the three-month and those tenures."

 

OUTLOOK

On Thursday, swap rates are likely to track the movement in US Treasury yields. On the domestic front, the next cue on interest rates will come in the form of India's CPI inflation data for August at 1600 IST Friday, dealers said.

 

CPI inflation in India likely rose to 2.1% in August from an eight-year low in July because of the fading of the statistical effect of a favourable base and a rise in food and gold prices, according to an Informist poll. The reading was broadly priced into OIS rates, and would not move the market if it were on expected lines, dealers said.

 

A further fall in swap rates is unlikely, given the expected rate cut in the US, but traders remain uncertain about further rate cuts in India. At the same time, offshore traders are likely to continue receiving fixed rates and put downward pressure on swap rates, dealers said. 

 

Traders may also take cues from geopolitical developments, especially on the US-imposed tariffs on India. There has been some thaw in the relations between the two countries. US President Donald Trump on Tuesday said he was "pleased" to announce that India and the US were continuing negotiations to address the trade barriers between the two nations, and that there should be no difficulty in successfully concluding a trade deal. Mirroring Trump's sentiment on India-US trade negotiations, Prime Minister Narendra Modi said on Wednesday that the teams from the two countries were working to conclude the discussions at the earliest.

 

Swaps may also track the movement of crude oil prices and the rupee against the dollar. The one-year swap rate is seen in the range of 5.42-5.55% Thursday. The five-year contract is seen at 5.60-5.75%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.47%	5.48%
2-year OIS	5.44%	5.45%
5-year OIS	5.70%	5.70%
2-year MIFOR	5.96%	5.96%
5-year MIFOR	6.28%	6.28%

 

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.

 

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