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Informist, Friday, Sept. 26, 2025

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended on a mixed note. The five-year swap rate rose slightly, tracking US Treasury yields after economic data in the US Thursday. Some traders aggressively received short-term swap rates, betting on the Reserve Bank of India's Monetary Policy Committee to instead deliver a 25-basis-point repo rate cut at the outcome of its upcoming meeting on Wednesday.

The one-year swap rate ended at 5.46%, closing at the same level for the third straight day. The five-year swap rate closed at 5.75% against 5.73% Thursday. The total notional trade volume on the Clearing Corp. of India's derivatives trading platform was INR 392.49 billion, up from INR 350.60 billion the previous session.

US government data released after Indian market hours Thursday showed that US GDP grew 3.8% in Apr-Jun, higher than 3.3% estimated earlier. Moreover, US initial jobless claims fell by 14,000 on week to 218,000, lower than expected and the second straight week with a sharp fall. The 10-year US Treasury yield rose to as high as 4.20% after the data, from 4.16% at 1700 IST, as traders pared bets on a rate cut by the US Federal Reserve. Still, the rise was limited in both US yields and India's swap rates, as a majority of traders still expect two more rate cuts of 25 bps each in the rest of 2025 in the US.

"The five-year is getting unwound by offshore guys who had come here because of the differential and playing on relatively aggressive cuts in the US," a dealer at a private-sector bank said. "With the latest data, that is not happening in a hurry and so offshore seemed to be quite active."

However, short-term swap rates saw significant interest from traders looking to receive fixed rates ahead of the three-day MPC meeting starting Monday. The tone and commentary of the rate-setting panel and that of RBI Governor Sanjay Malhotra is expected to indicate scope for a rate cut of 25 bps in December. Traders are also expecting that the central bank will lower its CPI inflation forecast for 2025-26 (Apr-Mar) by anywhere from 20-70 bps, due to the latest rejig in the goods and services tax structure, and a slew of recent prints of headline inflation being below forecasts. 

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. 

"It is a close call on Wednesday, but if you're received on swaps there is not enough of a losing scenario," a dealer at another private-sector bank said. "Yes, there is one rate cut priced in, but that's mostly in December instead of October. So you stand to make 10-15 bps even from levels, and short-term will obviously fall the most."

OUTLOOK

OIS rates are not traded on Saturday. On Monday, swap rates may open steady on caution ahead of the MPC outcome on Wednesday. The three-day policy review will begin Monday, dealers said.

The movement in US Treasury yields may lend cues to swap rates, especially after key US inflation data. The US government said after Indian market hours personal consumption expenditures inflation rose to 2.7% on year in August from 2.6% in July, while the annual core inflation rate was unchanged at 2.9%. The prints were in line with expectations. 

Traders remain uncertain about further rate cuts in India after the US Fed 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 dealers said.

Traders may take cues from geopolitical developments, especially on US tariffs on Indian goods. 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%. 

End

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

Edited by Deepshikha Bhardwaj

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