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Informist, Tuesday, Nov. 25, 2025

By Aaryan Khanna

NEW DELHI – Overnight indexed swap inched lower Tuesday on renewed hopes since Monday of a repo rate cut by the Reserve Bank of India's Monetary Policy Committee next week, dealers said. A fall in US Treasury yields also pulled down OIS rates on hopes of monetary easing in the world's largest economy as well.

The one-year swap rate fell to 5.42% Tuesday, its lowest closing level in over a month, from 5.44% Monday. The five-year swap rate ended flat at 5.71%. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 406.15 billion from INR 421.35 billion in the previous session.

"The market is now fully pricing in a December rate and is also hoping that the commentary is on the dovish side," a dealer at a private-sector bank said. "Until the policy, I don't expect rates will move up significantly from here, with traders just beginning to open up that rate cut positioning." The one-year OIS had fallen 4 bps Monday and now reflected expectations that the repo rate would be cut to 5.25% from the current 5.50%, dealers said.

In an interview with Hindi business news channel Zee Business during market hours Monday, Governor Sanjay Malhotra said the RBI had gotten no signal from the economic data released after the previous policy review that the scope for rate cuts had reduced. However, he said it would ultimately be the MPC's decision whether to use that space in December or later. 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. 

Moreover, the 10-year US Treasury yield eased to 4.03% by 1700 IST from 4.05% at the end of Indian market hours Monday. Both US Fed Governor Christopher Waller and San Francisco Fed President Mary Daly Monday said they prefer to cut interest rates in December to support the ailing labour market. Waller also said rate decisions from January should be on a meeting-by-meeting basis after an influx of economic data in December. Fed funds futures reflected an 80.9% probability of a 25-basis-point rate cut in December, nearly double the 42.4% chance they showed a week ago, according to the CME FedWatch tool. Traders said increased expectations of a US rate cut also boost chances of a rate reduction in India.

However, traders remain uncertain of a further downward trend in swap rates with one repo rate cut priced in and uncertainty on the further trajectory of rates. The MPC cut the policy repo rate by 100 bps between February and June. In its outlook for 2026, Deutsche Bank said it expects the MPC to cut the repo rate in December before an extended pause next year, followed by potential rate hikes only in 2027.

"It's a bit early to think about whether they will cut rates in February as well, but if the tone is good then rates should drift lower from here," a dealer at an another private-sector bank said. "The governor would not have spoken 10 days before the policy if he did not to send a signal to the market."

OUTLOOK

On Wednesday, swap rates are likely to track movements in US Treasury yields. A rise in swap rates is less likely after RBI Governor Malhotra reiterated that space for a rate cut remains open, dealers said. OIS rates may inch lower closer to the rate decision on Dec. 5 though a 25-basis-point repo rate cut had already been priced in, they said.

Focus remains on India's September quarter GDP data on Friday, before the three-day MPC meeting starting Dec. 3. India's GDP growth rate likely fell to a three-quarter low of 7.2% in the September quarter, according to the median of an Informist poll of economists. This is broadly in line with market expectations and above the RBI's projection of 7.0%. Some traders said that even a higher print will not deter rate cut bets. At the previous policy meet, RBI officials had said that while Jul-Sept growth may 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 continued 50% tariff on India's exports to the US 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%.

End

US$1 = INR 89.23

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

Edited by Deepshikha Bhardwaj

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