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Informist, Tuesday, Oct. 7, 2025

 

By Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates ended lower Tuesday as traders received fixed rates noting the easy overnight rates due to comfortable liquidity conditions, dealers said. With the Reserve Bank of India having not held a variable rate reverse repo auction since Sept. 12, the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – was below 5.40% for the second straight day.

 

The one-year swap rate ended at a fresh 41-month low of 5.41%, against 5.42% Monday. The five-year swap rate closed at 5.64%, the lowest in four months, against 5.66% Monday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 545.85 billion, up from INR 351.15 billion in the previous session.

 

Traders had expected the RBI to maintain the overnight MIBOR rate at 5.45-5.50% and positioned accordingly. This was reinforced after the central bank, in its revised liquidity management framework released Sept. 30, said it would aim to align the weighted average call rate to the policy repo rate. The repo rate is currently 5.50%.

 

However, the RBI has avoided setting a base to overnight rates since then. The weighted average call rate has drifted to 5.35%, while the weighted average triparty repo rate has eased to 5.24% since Monday. This led to traders receiving fixed rates in swaps as traders began betting on overnight rates being lower after the Monetary Policy Committee seemed to signal a rate cut ahead.

 

"Flattening due to positive carry," a dealer at a primary dealership said in response to why long-term swap rates fell more than short-term swaps. Carry refers to the spread earned here over the MIBOR rate. "...at some point in time it (market) has to (notice the RBI is not doing VRRRs)."

 

Last week, the Monetary Policy Committee 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 committee 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 scheduled 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, such as lower overnight rates, dealers said.

 

OUTLOOK

On Wednesday, swap rates may take cues from the movement of US Treasury yields, 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	MONDAY
1-year OIS	5.41%	5.42%
2-year OIS	5.36%	5.38%
5-year OIS	5.64%	5.66%
2-year MIFOR	5.86%	5.91%
5-year MIFOR	6.22%	6.24%

 

End

 

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

 

Edited by Ashish Shirke

 

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