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Informist, Thursday, Nov. 27, 2025

 

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended on a mixed note. Swaps maturing in three years or more ended higher Thursday as traders unwound their received fixed rate bets at a profit, dealers said. Swaps maturing in up to one year were flat on hope of the Reserve Bank of India's Monetary Policy Committee cutting the repo rate by 25 basis points to 5.25% next week. 

 

The one-year swap rate ended at 5.43% against 5.43% Wednesday. The five-year swap rate ended at 5.71% against 5.69% the previous day. 

 

RBI Governor Sanjay Malhotra Monday said 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. 

 

These hopes persisted heading into the release of India's September quarter GDP data at 1600 IST Friday. 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 growth reading of up to 7.5% will not deter rate cut bets.

 

The two-month swap rate was the most traded contract Thursday, with around an 80% probability of a 25-bps rate cut next week already factored into OIS rates. With nearly INR 77 billion in volumes including a single trade of INR 10 billion, dealers said a market participant was likely building a position on the impact of the GDP data on the rate cut trajectory.

"In my personal view, its possible that the growth number comes lower because of how much demand was pent-up between Aug. 15 and Sept. 22, when the GST (goods and services tax) cut was announced and implemented," a dealer at a private-sector bank said. "Between that hit to consumption and the US tariffs, its very possible that GDP disappoints the market and opens up space for another rate cut down the line."

 

However, if the GDP growth is closer to 8.0%, some traders were sceptical of even the single rate cut in December, dealers said. Even as CPI inflation fell to a record low of 0.25% in October, the RBI would also be wary of easing monetary policy after the recent weakness in the rupee, they said. The domestic unit fell to a record low of 89.4950 a dollar on Friday and has recovered only to 89.31 by Thursday after RBI intervention and a sharp fall in the dollar index. Typically, a rate cut leads to weakness in the local currency as yields go down and lead to foreign money flowing out of debt instruments. 

 

Both foreign and domestic banks also preferred to take profit at the psychologically crucial 5.68% level on the five-year OIS rate, dealers said. It was the only other contract with significant volume amid thin trade in swaps maturing between one and five years. Traders said the swap rate may only fall below the key level if the market begins to price in the possibility of a rate cut beyond December, which is not widely expected in the market in the face of rising CPI inflation in the next few months closer to the RBI's 4% aim. 

 

"I'm not convinced the MPC will cut rates in the face of the rupee weakness. The governor (on Monday) only reiterated what we already knew," a dealer at a foreign bank said. "The five-year (swap rate) is also refusing to go down because of the external environment, what is happening in the rest of Asia." Earlier Thursday, the Bank of Korea held rates and changed wording that pre-committed it to further rate cuts in the face of weakness and volatility in its currency. 

 

OUTLOOK

Swap rates are expected to open steady Friday on caution before the release of India's GDP data for the September quarter at 1600 IST. 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 in both December and beyond, 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.

 

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 0.2% 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	WEDNESDAY
1-year OIS	5.43%	5.42%
2-year OIS	5.42%	5.42%
5-year OIS	5.71%	5.69%
2-year MIFOR	5.81%	5.79%
5-year MIFOR	6.29%	6.28%

 

End

 

US$1 = INR 89.31

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

 

Edited by Akul Nishant Akhoury

 

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