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Informist, Thursday, Oct. 16, 2025

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended higher Thursday as traders unwound their received fixed rate bets on an extended rate cut cycle in India following the minutes of the Reserve Bank of India's Monetary Policy Committee's latest meeting, dealers said. The five-year swap rate rose the most, but swaps maturing within six months also inched up amid higher than usual volumes.

The one-year swap rate closed at 5.43% from 5.42% at Wednesday's close. The five-year swap rate closed at 5.63%, rising from 5.58% Wednesday, which was a five-month low. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 485.80 billion, up from INR 386.00 billion in the previous session.

According to the minutes released Wednesday after market hours, most members of the MPC seemed in favour of policy easing but were unsure of the timing, 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 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 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 basis points between February and June. Traders pared their bets on a February rate cut after these comments, and some were unsure that the panel would even cut the repo rate in December. However, swap rates still reflected that a 25-basis-point rate cut in December was fully priced in, dealers said.

"The members seemed quite data dependent. It doesn't look as if the December cut is a sure-shot," a dealer at a primary dealership said. "The bigger thing is that if there's only limited space, then it means that commentary will signal the end of the rate cut cycle in December, which will always be met by some disappointment."

Developments on the geopolitical front also led to some traders paying fixed rates, dealers said. US President Donald Trump said at a White House event Wednesday that Prime Minister Narendra Modi has assured him that India will not be buying oil from Russia, seen as the trigger for the punitive 25% additional tariffs levied by the US on imports from India. Reserve Bank of India Governor Sanjay Malhotra Wednesday acknowledged that India's GDP growth could rise if there was an early resolution to tariffs. With an Indian team in the US this week to continue negotiations on a trade agreement, traders feared that if the growth overhang would unwind, the MPC would have less of a case to cut rates, dealers said.

Still, dealers do not expect a sharp rise in OIS rates, with monetary policy expected to ease both in India and the US. While some offshore traders unwound their bets, most offshore flows are seen pushing down OIS rates at least until the next meeting of the US Federal Open Market Committee, dealers said. At the next FOMC meeting in two weeks, the panel is universally expected to cut its policy rate by 25 bps.

"The 10-year US yield has come down by 20 basis points to around 4.0%," a dealer at another primary dealership said. "The five-year OIS is down from around 5.72% to the 5.62% handle. So this much movement is very much in line with the global move, and there shouldn't be any paying pressure except from the knee-jerk today (Thursday) from goes who had gone too aggressive."

OUTLOOK

On Friday, OIS rates may take cues from the overnight movement in US Treasury yields. With the minutes of the MPC's Sept. 29-Oct. 1 seen weakening the case for a February rate cut, traders do not expect a sharp movement in OIS rates based on domestic cues in the near term, dealers said. 

They are likely to retain their rate cut bets for December 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 in into the one-year swap rate for the past several weeks and will not move swap rates lower, 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 further 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 Subhojit Sarkar

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