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Informist, Wednesday, Nov. 26, 2025

 

By Aaryan Khanna

 

NEW DELHI – Most overnight indexed swap rates ended lower due to a fall in US Treasury yields and bets the Reserve Bank of India's Monetary Policy Committee would cut rates next week, dealers said. The one-year swap rate ended flat after a sharp fall in the last two sessions and because the rate cut was priced in.

 

The one-year swap rate ended at 5.42% Wednesday, flat against the previous close. The five-year swap rate ended at 5.69 against 5.71% Tuesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose to INR 435.25 billion from INR 406.15 billion in the previous session.

 

The 10-year US Treasury yield dipped below 4% for the first time in November and was at 4.01% at 1700 IST, against 4.03% at the end of Indian market hours Tuesday. Economic data released Tuesday made a stronger case for a December rate cut in the US. Producer Price Index inflation was up 2.7% on year in September, the same as in August, while core producer price inflation was 2.6% on year, against 2.9% in August. Meanwhile, retail sales grew 0.2% on month in September, lower than the 0.6% growth in August and missing the consensus estimate of a 0.4% rise, according to a Reuters poll.

 

Fed funds futures reflected an 84.4% chance of a December rate cut of 25 bps by the Fed, slightly higher than the previous day and up from 50.1% a week ago. On Tuesday, Fed Governor Stephen Miran reiterated his call for a rate cut next month due to a weakening labour market.

 

"The five-year (OIS) had not gone down yesterday (Tuesday) before all the US data, so I guess that reflected more today (Wednesday). There was also more offshore activity in general," a dealer at a primary dealership said. "Already the one-year rate is pricing in 90-100% chance of a cut in December, so you can't really take any fresh positions there."

 

The fall in US yields comes alongside stronger expectations of policy easing in India as well. RBI Governor Sanjay Malhotra said Monday that the central bank had got no signal from the latest economic data that the scope for rate cuts had reduced. However, whether the Monetary Policy Committee would act on that room at next week's meeting would depend on its assessment at the time, the RBI governor said. Still, OIS rates had priced in a certain 25-basis-point rate reduction on Dec. 5 to 5.25%, dealers said. 

 

The six-month swap rate was the most traded contract Wednesday as some traders bet on a rate reduction by the MPC even past December. However, this is a minority view and most dealers said they would only place bets on the further rate trajectory. The consensus view is that the MPC will only cut the repo rate by 25 basis points further in the current cycle, after bringing the policy rate down 100 bps between February and June. 

 

With traders heavily receiving the five-year OIS as well, the swap rate fell to a near-two-week low of 5.68% intraday. Traders unwound their received fixed rate bets at the psychologically crucial level, preventing a fall below the mark, dealers said. 

 

"It's difficult to gauge any rate expectations in the five-year (swap rate), the one-year is where those expectations are while there are a lot more factors playing out in the five-year," a dealer at a foreign bank said. "It (five-year OIS rate) may not fall much below 5.68% until policy as high rates across Asia are not very conducive to the that rate falling sharply." 

 

OUTLOOK

On Thursday, 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 largely 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 21 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. A growth rate near 8.0% may weigh on rate cut expectations whereas a reading around 7.0% will fuel rate cut bets, dealers said. The GDP data will be released at 1600 IST Friday.

 

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.

 

The rupee's movement against the dollar is also closely tracked, as some traders fear the MPC may avoid cutting rates in the face of the rupee's recent weakness. The domestic unit hit a record low of 89.4950 a dollar on Friday and has since recovered 0.5% only with the RBI's constant intervention.

 

Traders will also track the overnight Mumbai Interbank Outright Rate and crude oil prices for cues, dealers said. The one-year swap rate is seen at 5.38-5.50% and the five-year rate is seen at 5.66-5.75%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.42%	5.42%
2-year OIS	5.42%	5.43%
5-year OIS	5.69%	5.71%
2-year MIFOR	5.79%	5.81%
5-year MIFOR	6.28%	6.30%

 

End

 

US$1 = INR 89.27

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

 

Edited by Deepshikha Bhardwaj

 

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