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Informist, Friday, Nov. 21, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates reversed their early decline Friday after the rupee fell the most in a day against the dollar since May 8, prompting traders to unwind bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee next month. To prevent further depreciation of the local currency, the rate-setting panel may refrain from cutting rates in December, dealers said. A rise in bond yields near the end of trade also pushed up swap rates, dealers said. 

 

The one-year swap rate ended at 5.48%, up from 5.46% on Thursday. The five-year swap rate closed at 5.77%, up from 5.76% Thursday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 362.55 billion, down from INR 505.85 billion in the previous session.

 

Swaps largely traded lower in early hours, tracking an overnight fall in US yields. US yields fell as the US employment report for September showed that the unemployment rate rose to 4.4%--the highest level in almost four years, even as non-farm payrolls rose sharply higher than expected. The yield on the benchmark 10-year US Treasury yield was at 4.09% at 1700 IST, down from 4.14% at the same time Thursday.

 

Expectations of a 25-basis-point rate cut at the Federal Open Market Committee's December meeting rose to 39.1% from 30.1?ay ago, according to the CME FedWatch tool. Demand for safe-haven assets amid a global rout in technology stocks also pushed yields lower.

 

The RBI's announcement of a variable rate repo auction provided comfort to traders, as it indicated the central bank's support for maintaining sufficient liquidity in the banking system. The RBI conducted a seven-day variable rate repo auction of INR 500 billion, and took all bids worth INR 163.63 billion. However, the overnight Mumbai Interbank Offered Rate was set at 5.59%, up from 5.48% Thursday, as outflows for goods and services tax payments pushed money market rates higher Friday. Earlier in the day, some traders received fixed-rate bets on the expectation that the MPC would cut rates next month, dealers said.

 

"In the morning, there was some passive receiving, people were playing on a soft policy next month, (hopes of) at least one more cut, but when the rupee fell, I think it was cutting of positions by offshore," a dealer at a private sector bank said. "Earlier in the day, we were pricing in some bets of a cut, but I don't know whether that's still there now."

 

However, swap rates rose as both onshore and offshore traders unwound rate-cut bets when the rupee unexpectedly fell 78 paise, to hit a fresh record low against the dollar, as the RBI let go of its strong support at 88.80 a dollar, dealers said. 

 

The five-year swap rate hovered on the edge of the key technical level of 5.78%, hitting a day's high of 5.7775%, but did not rise above this level. Nearing the end of trade, a rise in the 10-year benchmark 6.48%, 2035 bond yield above the psychologically crucial 6.50% level also led to traders paying fixed rate contracts in swap rates. Bond yields rose, tracking the rupee's fall, after RBI data showed the central bank sold gilts worth INR 148.10 billion via open market operations in the week ended Nov. 14, when traders had been expecting a 'buy' figure. Most dealers said that there was likely an error in the data and hoped for a rectification from the RBI to show purchases. 

 

"OIS seems to be a bit of a problem, because the OIS curve, atleast on a technical basis seems very off and if one more negative news (comes) then again we'll go into an uptrend, it looks a bit dangerous," a dealer at another private sector bank said. "If 5.78% breaks (on the five-year swap rate), then OIS will start having an effect on G-sec (gilts), then there, unless RBI comes in with a heavy hand, it's going to be trouble."    

  

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swap rates are likely to track movements in US Treasury yields, dealers said. Next week, focus will shift to India's GDP data for the September quarter. The data, scheduled for Nov. 28 — a week before the next policy review — is the next cue on the domestic rate trajectory. Traders largely expect a print of around 7.2%. State Bank of India sees India's GDP growth in Jul-Sept at 7.5%, against the RBI's projection of 7.0%. Some traders have priced in a higher print, since the RBI has said that while Jul-Sept growth will be strong, the growth trajectory later on could be weaker due to external risks, dealers said. 

 

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 Outright Rate, dealers said. Traders may continue trading swaps maturing in under a year to adjust their rate-cut bets and bet on the spread between MIBOR and money market rates. 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 rate is seen at 5.68-5.85%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.48%	5.46%
2-year OIS	5.48%	5.46%
5-year OIS	5.77%	5.76%
2-year MIFOR	5.86%	5.85%
5-year MIFOR	6.34%	6.33%

 

End

 

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

 

Edited by Saji George Titus

 

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