More Stories

Informist, Wednesday, Sept. 24, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended steady for the third straight day due to lack of fresh interest rate cues, with another repo rate cut of 25 basis points in 2025 already priced in. Traders remained cautious ahead of the Reserve Bank of India's three-day Monetary Policy Committee meeting, which begins Monday, dealers said.

 

The one-year swap rate ended at 5.46%, flat against Tuesday's close. The contract has closed between 5.45% and 5.48% since Sept. 9. The five-year swap rate closed at 5.73%, against 5.72% Tuesday.

 

The MPC unanimously held the policy repo rate at 5.50% in August, after cutting the policy rate by 100 bps between February and June. Traders expect the panel to cut rates once more in 2025, with CPI inflation holding well below the RBI's 4% target and GDP growth pinched by US tariffs on Indian goods. One rate cut by December is already priced in, but bets on an October rate cut remain light, dealers said.

 

"There is no joy in holding on to a received position here, as one rate cut is already priced in," a dealer at a private sector bank said. "And it doesn't look like RBI will pivot immediately in one policy."

 

The consensus view remains that the tone and commentary of RBI Governor Sanjay Malhotra in the policy statement will be softer as CPI inflation is set to undershoot the central bank's latest forecast of 3.1% on average for 2025-26 (Apr-Mar). This could set the stage for policy easing at the committee's next meeting in December, especially with further data points in hand. This will include a potential fall in inflation due to goods and services tax rationalisation that started this week, and the impact of US tariffs on the Jul-Sept GDP print, to be released November-end.

 

In a poll by Informist, the majority of economists said the panel is likely to keep interest rates on hold for the second consecutive meeting next month after GDP grew much quicker than expected in the June quarter. However, four of the 15 economists polled said they expected a 25-basis-point rate cut. 

 

Volumes in the five-year swap rate were muted due to lack of activity by offshore traders, even with some traders unwinding bond-swap positions, dealers said. Traders had bought the five-year government bond two weeks ago as its spread over the five-year swap rate was near 60 bps. Now that the spread has narrowed to around 43 bps as short-term bond yields fell, traders unwound their positions Wednesday, they said.

 

"OIS is not giving any return at all, so people have lightened up positions in the market," a dealer at a primary dealership said. "Views are split on whether bonds or swaps will move more in a rate cut, but broadly there seems to be a little positivity in funded instruments (gilts) right now despite all the supply risks."

 

OUTLOOK

On Thursday, swap rates may open steady due to lack of significant cues before the MPC begins its three-day policy review Monday, dealers said. Any sharp movement in US Treasury yields may lend cues, though the impact is likely to be muted ahead of the key domestic event.

 

Traders remain uncertain about further rate cuts in India after the US Federal Reserve signalled it would take a slow and steady path to rate cuts, though OIS rates are pricing in a rate cut of 25 bps in India by December. Offshore traders are likely to continue receiving fixed rates and put downward pressure on swap rates, with domestic traders also amping up their bets in the run-up to the domestic policy review next week, dealers said.

 

Traders may take cues from geopolitical developments, especially on US tariffs on Indian goods. Recent positive comments on a trade deal and a thaw signalled by the leaders of the two countries augur well for swap rates to shed some risk premium due to the tariffs while also attracting more offshore traders, dealers said.

 

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 5.40-5.55% and the five-year contract at 5.62-5.80%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.46%	5.46%
2-year OIS	5.45%	5.43%
5-year OIS	5.73%	5.72%
2-year MIFOR	5.99%	6.00%
5-year MIFOR	6.32%	6.33%

 

End

 

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

 

Edited by Avishek Dutta

 

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 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

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