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Informist, Monday, Nov. 24, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower as comments by Reserve Bank of India Governor Sanjay Malhotra cemented hopes of a policy repo rate cut of 25 basis points to 5.25% in December, dealers said. The one-year swap rate, the gauge of near-term domestic interest rate expectations, ended at its lowest level in over a month and was now pricing in a nearly 100% chance that the RBI's Monetary Policy Committee will cut rates next week.

 

The one-year swap rate fell 4 bps to 5.44% Monday, its biggest one-day fall since Aug. 4. The five-year swap rate fell 6 bps, the most since the last policy decision on Oct. 1, to 5.71%. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose to INR 421.35 billion from INR 362.55 billion in the previous session.

 

In an interview with Hindi business news channel Zee Business, Malhotra said that none of the economic data released after the last policy review has reduced the scope for further rate cuts in India. This followed his comments on Oct. 1, when he said that low inflation had opened up policy space to support growth. Since the policy, CPI inflation fell to a record low of 0.25% in October and has been below the RBI's medium-term target range of 2-6% for three of the past four months.

 

"I don't think the governor said anything fresh beyond what the MPC said in October, but the market was recovering from a weak base and reacted," a dealer at a primary dealership said. "He (Malhotra) has kept traders interested, but whether he delivers or not still remains a very marginal call."

 

Prior to the comments, the one-year swap rate was pricing in only a 10-15% chance of a rate cut in December, dealers said. Traders were looking ahead to the September quarter GDP data on Friday to place bets on the MPC's outcome next week, but now said any positive impact of the reading would be limited after the governor's comments that seemed to hint at policy easing.

 

Some market participants believed the record-low, near-zero CPI inflation print in October made the case for a rate cut. Others still see the decision as contingent on the impact of higher US tariffs on India's GDP growth and robust data may weaken the case for a rate cut that is now priced in. Traders are expecting a GDP growth reading of around 7.0-7.5% against the RBI's forecast of 7.0% for the September quarter. 

 

Traders are also worried the RBI may not ease monetary policy to avoid putting pressure on the domestic currency. The rupee slumped 0.9% against the dollar on Friday to a record low of 89.4950 a dollar amid uncertainties over an India-US trade deal. Swap rates had already eased slightly Monday before the governor's remarks as the Indian currency rose to settle at 89.23 a dollar.

 

"The RBI has made its presence felt in FX (foreign exchange) today (Monday) and so the rupee has regained some part of the losses," a dealer at a private-sector bank said. "In fact, US yields are down as it looks like important Fed (Federal Reserve) officials other than (Fed Chair Jerome) Powell are favouring another rate cut in December."

 

The 10-year US Treasury yield fell to 4.05% at 1700 IST from 4.09% at the end of Indian market hours Friday after comments from New York Federal Reserve President John Williams increased hopes of a December rate cut in the US. This led to a fall in the five-year overnight indexed swap rates and pushed up gilt prices, with greater rate-cut expectations in the US seen boosting the chances of a rate cut by the MPC as well. Fed funds futures zoomed to price in a 69.4% chance of a rate cut of 25 basis points at the US Federal Open Market Committee meeting in December from below 30% last week, according to the CME FedWatch tool.

 

OUTLOOK

On Tuesday, swap rates are likely to track movements in US Treasury yields, dealers said. A rise in swap rates is less likely after RBI Governor Malhotra reiterated that space for a rate cut remains open and OIS rates may inch lower closer to the rate decision.

 

Focus remains on India's September quarter GDP data on Friday, before the three-day MPC meeting starting Dec. 3. Traders are expecting a GDP growth rate of around 7.0-7.5%. 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 said that while Jul-Sept growth will be strong, the growth trajectory in the December quarter onwards 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. With no recent developments, dealers said a potential delay to this timeline may also prompt the RBI to ease monetary policy.

 

Traders will also track systemic liquidity and the overnight Mumbai Interbank Outright Rate, dealers said. Traders may continue to focus on 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	FRIDAY
1-year OIS	5.44%	5.48%
2-year OIS	5.44%	5.48%
5-year OIS	5.71%	5.77%
2-year MIFOR	5.82%	5.86%
5-year MIFOR	6.31%	6.34%

 

End

 

US$1 = INR 89.23

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

 

Edited by Saji George Titus

 

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