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Informist, Wednesday, Oct. 15, 2025

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates inched down as traders continued to receive fixed rates, betting on rate cuts by the Reserve Bank of India's Monetary Policy Committee and the US Federal Open Market Committee. Traders were hoping the minutes of the MPC's last meeting on Sept. 29-Oct. 1, released at 1700 IST, would show members are firmly in favour of cutting rates in its next meeting in two months time.

The one-year swap rate closed at 5.42% from 5.43% at Tuesday's close. The five-year swap rate closed at 5.58%, its lowest since May 7 and down from 5.60% Tuesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 386.00 billion, down from INR 441.76 billion in the previous session.

Offshore traders received fixed rates as the 10-year benchmark US Treasury yield continued to trade near its lowest in a month, at around 4.0%. On Tuesday, US Federal Reserve Chair Jerome Powell's comments about weakness in the labour market seemed to indicate that monetary policy easing in the US is likely to continue, dealers said. There is an overwhelming expectation that US policy rates will fall by 25 basis points each in October and December, according to the CME FedWatch tool.

"Unlike yesterday (Tuesday), there is activity on the short-term segments also," a dealer at a foreign bank said. "That shows it is not driven only by a macro view, or offshore flows, but a very real interest that the MPC may cut rates some more."

Rate cut expectations in India have risen after CPI inflation fell to an over eight-year low of 1.54% in September from 2.07% in August. At 0.13%, the WPI inflation for September was also lower than the estimate of 0.4% in an Informist poll. In its latest resolution, the MPC had already said that falling inflation had opened up the space to ease monetary policy to support growth. 

A 25-basis-point rate reduction in December to 5.25% is already priced into swap rates. However, rates maturing in less than a year eased slightly as traders unwound some fixed rate bets taken due to uncertainty on the overnight Mumbai Interbank Outright Rate fixing, dealers said. The overnight MIBOR--the floating leg of the OIS contract--was set at 5.41% Wednesday, down 7 bps from the previous day and falling sharply from 5.66% on Friday.

Moreover, traders were hoping MPC members may signal intent to cut the repo rate more than already factored into OIS rates. Traders had begun taking bets that a slowdown in growth amid comfortable inflation may allow the rate-setting panel to cut the repo rate in February as well as December. Some offshore traders had also bet heavily on this possibility, dealers said.

OUTLOOK

On Thursday, OIS rates may take direction from the the minutes of the MPC's Sept. 29-Oct. 1 meet, released after market hours Wednesday. Some traders said the minutes were a positive for the market as it showed a majority of the members seemed in favour of policy easing but were unsure of the timing, while others said it offered no new clues or certainty that the panel would cut rates in December, dealers said.

External members Ram Singh and Nagesh Kumar were the loudest voices calling for further policy easing, with both of them seeking to change the policy stance to 'accommodative' from 'neutral' as well. Singh said a stance change may help improve the impact of the policy easing cycle. RBI Governor Sanjay Malhotra said the aim of the policy was to facilitate growth-enabling conditions, even while the panel was unanimous in holding the repo rate.

RBI Deputy Governor Poonam Gupta noted that the scope to cut policy rates was limited and seemed to signal that monetary policy may be best served until global uncertainty clears up. External member Saugata Bhattacharya said that the impact of prior actions on fiscal and monetary policy, along with banking regulation and other factors, need to be monitored before cutting rates further. The MPC had cut the repo rate by 100 bps between February and June.

Traders may continue receiving fixed rates and ramp up bets of one or more rate cuts in December and beyond after CPI inflation fell to an over-eight-year low of 1.54% in September from 2.07% in August. Economists project October CPI inflation at less than 1%, the lowest in the current series with 2012 as the base year. This is likely to put pressure on the MPC to ease rates further, though a December rate cut is fully priced into the one-year swap rate for the past several weeks, dealers said.

On the global front, traders may track developments in the US after the government partially shut down in early October. The New York Times reported that the US CPI data for September may be released during the week, despite the shutdown. Traders may take cues from geopolitical developments, especially on India-US trade talks.

Swaps may also track the movement of the rupee against the dollar and of crude oil prices. The one-year swap rate is seen in the range of 5.38-5.48% and the five-year contract at 5.55-5.66%.

End

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

Edited by Akul Nishant Akhoury

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