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Informist, Monday, Sept. 29, 2025

 

By Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates ended steady Monday due to a lack of fresh interest rate cues ahead of the Reserve Bank of India's Monetary Policy Committee metting outcome on Wednesday, dealers said. Trade volumes were lacklustre as the three-day meeting began Monday.

 

The one-year swap rate ended at 5.47%, against 5.46% Friday. The five-year swap rate closed at 5.75%, flat against Friday. The total notional trade volume on the Clearing Corp. of India's derivatives trading platform was INR 181.80 billion, less than half of the INR 392.49 billion the previous session.

 

"We will see how the policy goes, now everything is dependent upon it," a dealer at a private-sector bank said. "I think almost everybody is already positioning for another rate cut, but people are not convinced it will be in October after the strong growth figure."

 

India's GDP growth rose to a five-quarter high of 7.8% in the June quarter. Traders are pricing in a rate cut either in October or December--the latter is favoured as it will come after the September quarter GDP data, which is expected to show some weakness in the domestic economy. A 25-basis-point rate cut from the current 5.50% is still being priced in by December, dealers said.

 

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. A minority of the market is expecting these factors to lead to a rate cut in October itself, dealers said. 

 

In a poll by Informist, the majority of economists said the MPC 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. 

 

"Everything was quiet on OIS today, there was no direction," a dealer at a primary dealership said. "The key part on this policy remains the same regardless of whether he (the MPC) cuts rates: what is the guidance going forward, are there more cuts going ahead or there's nothing to look forward to?"

 

The domestic rate outcome dominated traders' positoning Monday. There were no major offshore flows on Monday and no significant movement in US Treasury yields, dealers said. They also said they would track global triggers closely only after the MPC outcome.

 

OUTLOOK

On Tuesday, swap rates may open steady on caution ahead of the MPC outcome on Wednesday, dealers said. The three-day policy review began Monday. The movement in US Treasury yields may lend cues to swap rates but the impact of these will be limited before the domestic policy outcome.

 

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. With such a cut already reflected, comments from RBI Governor Malhotra signalling further rate cuts may have a limited impact on swap rates, though a reduction in India's policy rate to 5.25% Wednesday will send OIS rates tumbling, 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%. 

 

	At 1700 IST	FRIDAY
1-year OIS	5.47%	5.46%
2-year OIS	5.46%	5.45%
5-year OIS	5.75%	5.75%
2-year MIFOR	6.01%	6.02%
5-year MIFOR	6.34%	6.33%

 

End

 

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

 

Edited by Akul Nishant Akhoury

 

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