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Informist, Wednesday, Nov. 19, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended off lows Wednesday, tracking a reversal in gilt yields, which rose near the end of trade, dealers said. Earlier in the day, traders were keen to receive fixed rates as they placed fresh bets on the possibility of a rate cut by the Reserve Bank of India's Monetary Policy Committee, which was reflecting only marginally in swap rates, dealers said. Some offshore traders also received fixed-rate contracts.

 

The one-year swap rate, which touched an intraday low of 5.44%, ended at 5.45%, against 5.46% Tuesday. The five-year swap rate ended at 5.73%, from 5.74% Tuesday after falling to 5.72% intraday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 388.40 billion, down from INR 530.05 billion in the previous session. 

 

"The market is again relooking at the possibility of rate cuts in December," a dealer at a private-sector bank said. "The pricing for December had gotten really out of hand and a reversal was due. That has finally come, though not completely."

 

Traders reassessed their rate cut expectations as the next monetary policy meeting was only two weeks away. Even with a faster pace of GDP growth than the RBI estimates for the September quarter, the near-zero CPI inflation in October should prompt the Monetary Policy Committee to cut the repo rate, traders said. Retail inflation fell to a record low of 0.25% in October. Some traders remained unconvinced that the reading would be enough to prompt a rate reduction unless the RBI's inflation forecasts are revised downward again. According to the RBI's projection, CPI inflation is expected to average 4.0% in the March quarter and 4.5% in Apr-Jun FY27. 

 

State Bank of India pegs India's Jul-Sept GDP growth at 7.5%, higher than the RBI's forecast of 7.0%. Traders said GDP growth is likely to moderate in the coming quarters, a fact acknowledged by both RBI Governor Sanjay Malhotra and Deputy Governor in charge of monetary policy Poonam Gupta. Latest data showed the impact of US tariffs is likely to be severe on net exports in the December quarter data – the merchandise trade deficit widened to a record $41.68 billion in October.

 

Some traders also received fixed rates early in the day, tracking bond purchases by foreign portfolio investors. Offshore traders also received fixed rates, dealers said. Gilt yields have inched lower on the hope of India's inclusion in Bloomberg's Global Aggregate Index after Business Standard reported Tuesday that FPIs have given positive feedback on India's bond market. India is currently being evaluated for a potential weight of around 1% in the flagship Global Aggregate Index spread over roughly 10 months, which could lead to an inflow of around $25 billion, according to the report. The formal announcement is likely in January, the report said. 

 

"Yes, there is a small impact in OIS also (of the Bloomberg index inclusion news)," a dealer at a primary dealership said. "Ultimately, anything that is moving FPIs back to India after a dry patch this year is good for rates, but let us see how that plays out as we get closer to policy."

 

Traders had also received fixed rates as the rupee appreciated against the dollar intraday. A key concern for interest rate traders since Monday's trade deficit data has been that the MPC would not ease monetary policy or that the RBI would maintain a strident tone on inflation control to support the rupee against the greenback, dealers said. The central bank has been selling dollars since October to prevent the local unit from hitting its record low of 88.8025 a dollar. 

 

OUTLOOK

At open on Thursday, swap rates are likely to track movements in US Treasury yields after the release of the minutes of the US Federal Open Market Committee's October meeting, dealers said. Some traders received fixed-rate contracts Wednesday on bets that the FOMC minutes will indicate the scope for a 25-basis-point cut in the US in December, dealers said.

 

"For FOMC (minutes), people have made some positions in OIS, that will be a wise call to move with OIS (rather) than bonds," a dealer at a private sector bank said. 

 

Irrespective of the outcome of the FOMC minutes, the 10-year US yield is not expected to rise above the key technical levels of 4.17-4.20%, dealers said. Traders are more concerned about the chances of a domestic rate cut in December. Swaps may also track movement of government bond yields at open, dealers said.  

 

Meanwhile, corporate houses are likely to receive swap rates of up to two years, as seen since last week. This is likely because a large corporate house is shifting its interest rate bets from non-deliverable rupee derivatives to the onshore market.

 

Traders will also track geopolitical developments, especially those related to the India-US trade deal. Most traders expect more clarity on this front by the month-end. By that time, GDP data for the September quarter will also be out. 

 

Traders will also track systemic liquidity and the overnight Mumbai Interbank Offered Rate, dealers said. Traders may continue to trade in swaps maturing in under a year to adjust their rate-cut bets and bet on spreads between MIBOR and money market rates, dealers said.

 

Swaps may also track the rupee's movement against the dollar and crude oil prices. The one-year swap rate is seen at 5.40-5.55% and the five-year contract is seen at 5.68-5.80%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.45%	5.46%
2-year OIS	5.45%	5.45%
5-year OIS	5.73%	5.74%
2-year MIFOR	5.85%	5.84%
5-year MIFOR	6.32%	6.31%

 

End

 

US$1 = INR 88.5875

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

 

Edited by Saji George Titus

 

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