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Informist, Monday, Oct. 6, 2025

 

By Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates ended steady due to a lack of fresh triggers on domestic interest rates. Traders avoided paying fixed rates despite a rise in US Treasury yields on the view that the Reserve Bank of India's Monetary Policy Committee would cut the repo rate in December and possibly beyond, dealers 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 351.15 billion, up from INR 305.50 billion in the previous session.

 

The 10-year benchmark US Treasury yield rose to 4.16% at 1700 IST from 4.09% at the same time Friday. This was largely due to the uncertainty surrounding the US Federal Open Market Committee's potential rate cut decision later this month, combined with the delayed key economic reports due to the US government shutdown, dealers said. Offshore traders avoided paying fixed rates despite the rise as monetary policy in India is expected to ease. Moreover, the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – cooled to 5.39% Monday, its lowest since Sept. 11.

 

"Offshore guys are all received (have received fixed rates), nobody is paying," a dealer at a primary dealership said. "Even USTs (US yields) are not very convincing, since these are at the lower end of their recent range that went up to 4.50%."

 

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 waiting 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 started piling on risk that the panel could cut not only once more, but twice. The next significant cue in this regard will only come from the GDP growth print for the September quarter, which is sceduled for release on Nov. 28. Until then, dealers said the room for OIS rates to fall was minimal unless there was another interest rate trigger.

 

"The issue is, there are a lot of positions already built up here. So it is not a question of if the RBI will cut, but by how much," a dealer at a private-sector bank said. "From the comments, there also seems to be a divergence between what the (RBI) Governor and deputy governor want."

 

RBI Governor Sanjay Malhotra characterised the current growth-inflation dynamic as providing space for monetary policy to ease, but avoided clarifying how much space there was. In the post-policy press conference, RBI Deputy Governor in charge of monetary policy Poonam Gupta said that "some room has opened, but it has to be contextualised with everything else that is happening both domestically and globally."

 

OUTLOOK

On Tuesday, swap rates may take cues from the movement of US Treasury yields at open, especially if they rise further. 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 last week. 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	FRIDAY
1-year OIS	5.42%	5.43%
2-year OIS	5.38%	5.39%
5-year OIS	5.66%	5.67%
2-year MIFOR	5.91%	5.92%
5-year MIFOR	6.24%	6.25%

 

End

 

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

 

Edited by Tanima Banerjee

 

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