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Informist, Friday, Oct. 3, 2025

 

By Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates inched lower as traders continued to ramp up bets that the Reserve Bank of India's Monetary Policy Committee would cut the policy repo rate by 25 basis points or more in the coming months, dealers said. A rate cut of at least 25 bps at the December policy review was also priced into swap rates, they said.

 

The one-year swap rate ended at a fresh 41 month-low of 5.43%, against 5.44% Wednesday. The five-year swap rate closed at 5.67%, against 5.68% Wednesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 305.50 billion, slumping from INR 959.55 billion in the previous session.

 

On Wednesday, the MPC held the policy repo rate at 5.50% but said room to further support growth by easing monetary policy had opened up. The committee said it was waiitng for the impact of its prior policy actions – the repo rate was reduced by 100 basis points between February and June – to play out and gauge the impact of global headwinds. External MPC members Nagesh Kumar and Ram Singh were of the view that the policy stance should be changed to 'accommodative' from the current stance of 'neutral', seen as an indicator that they were keen to cut the repo rate.

 

With this, traders not only held onto their December rate cut bets but starting piling on risk that the panel could cut not only once more but twice. The sentiment was not widespread and some traders paid fixed rates at current levels, finding them lucrative if the MPC did not cut the repo rate at all at its next meeting, dealers said.

 

"The next logical possibility after one rate cut is that market will start looking at two rate cuts," a dealer at a primary dealership said. "It seems a bit too early to get very excited about it, but the market is always forward-looking, so people will take one position or another."

 

The case for the MPC to avoid a rate cut could come from growth headwinds fading, dealers said. Even if inflation aligns with the RBI's estimate of 4.0% in Jan-Mar and 4.5% in Apr-Jun, the bar to cutting rates may be high if growth doesn't falter. The next significant cue in this regard will only come from the GDP growth print for the September quarter, which is nearly two months away on Nov. 28. Until then, dealers said the room for OIS rates to fall was minimal unless there was another interest rate trigger.

 

On Friday, trade volumes were concentrated in swaps maturing in over a year, in contrast with the pattern on Wednesday, when the one-year was the most traded contract. Traders said they were unwinding "steepening" bets between the one-year and two-year swap rates. A trader from a foreign bank said some offshore traders were receiving fixed rates in the five-year swap as the 10-year US Treasury yield fell to 4.09% at 1700 IST from 4.16% at the end of Indian market hours Wednesday. 

 

"The volumes are in the two- and five-year tenures today (Friday), so you can take a guess that it was either offshore traders taking a look at the Indian market or some long-term positioning happening in terms of an extended accommodation," a dealer at a private sector bank said. "Other than that, I think people have already made what they are going to make in the short-term swaps unless we really have a growth shock that the RBI wakes up to."

 

OUTLOOK

OIS rates are not traded on Saturdays. On Monday, swap rates may take cues from the movement of US Treasury yields at open. Traders may continue receiving fixed rates and ramp up bets of one or more rate cuts in December and beyond after the MPC signalled that low inflation had opened space for policy easing, dealers said.

 

On the global front, traders may track developments in the US after the government partially shut down Wednesday. Traders may take cues from geopolitical developments, especially regarding US tariffs on Indian goods.

 

Swaps may also track the movement of the rupee against the dollar, and that of crude oil prices. The one-year swap rate is seen in the range of 5.40-5.50% and the five-year contract at 5.62-5.73%. 

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.43%	5.44%
2-year OIS	5.39%	5.41%
5-year OIS	5.67%	5.68%
2-year MIFOR	5.92%	5.95%
5-year MIFOR	6.25%	6.28%

 

End

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

 

Edited by Avishek Dutta

 

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