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Informist, Wednesday, Oct. 8, 2025

 

By Aaryan Khanna

MUMBAI – Overnight indexed swap rates ended on a mixed note. The short-term swap rates were flat, but the two- and five-year swap rates ended lower as some traders found them attractive while overnight money market rates remained below the repo rate, dealers said. Traders speculated offshore traders were receiving fixed rates in these tenures in relatively large quantums.

 

The one-year swap rate closed at 5.41%, flat versus Tuesday. The five-year swap rate closed at 5.62% against 5.64% Tuesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 267.95 billion, halving from INR 545.85 billion in the previous session.

 

Traders had expected the Reserve Bank of India to maintain the overnight 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 overnight MIBOR rate was set at 5.39% for the third straight day as the central bank has avoided announcing variable rate reverse repos for nearly four weeks. The weighted average call rate has drifted to around 5.35%, while the weighted average triparty repo rate has eased to near the Standing Deposit Facility rate of 5.25% 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.

 

"Last two days, people have been receiving across the curve where they are getting a carry," a dealer at a private-sector bank said. "Nobody has made any money in the five-year this year since it hasn't moved, but now it looks like people are ready to receive and start betting on an extended period of soft monetary policy."

 

Last week, 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 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.

 

"People are being opportunistic, but there is no formal signal from the RBI that anything has changed," a dealer at a foreign bank said. "So all this exuberance can be erased in an instant."

 

OUTLOOK

On Thursday, swap rates may take cues from the movement of US Treasury yields. 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	TUESDAY
1-year OIS	5.41%	5.41%
2-year OIS	5.35%	5.36%
5-year OIS	5.62%	5.64%
2-year MIFOR	5.80%	5.86%
5-year MIFOR	6.18%	6.22%

 

End

 

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

 

Edited by Deepshikha Bhardwaj

 

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