India IRS Review
Rise after red-hot GDP print puts paid to Dec rate cut bets
This story was originally published at 20:27 IST on 28 November 2025
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By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates ended higher Friday after GDP data dashed expectations of a rate cut at next week's Monetary Policy Committee meeting, dealers said. India's GDP grew to a six-quarter high of 8.2% in the September quarter, a percentage point higher than expected, leading to swap rates immediately shooting up after its release at 1600 IST.
The one-year swap rate ended at 5.46% against 5.43% Thursday. The five-year swap rate ended at 5.76% against 5.71% the previous day. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose to INR 368.70 billion from INR 273.10 billion in the previous session.
Traders entered the day with swap rates reflecting an 80% chance of a rate cut at next week's meeting of the Reserve Bank of India's rate-setting panel. The red-hot growth print drove that expectation and pricing down to less than 20% by the end of day on fears the MPC would avoid easing monetary policy further with economic momentum still robust, dealers said. With inflation likely having bottomed out in October at a near-0% print and constant pressure on the rupee, some traders were already sceptical the central bank would be in favour of a rate cut.
"We are back to where we were before the governor's comments. The issue is that even after a rate cut now, there is no chance of anything softening in monetary policy beyond, everything gets nullified," a dealer at a private-sector bank said.
Until last week, traders were lukewarm about the possibility of a rate cut taking these factors into consideration. However, 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 MPC would act on that room at next week's meeting would depend on its assessment at the time, Malhotra said. Following these comments, the one-year OIS rate – the benchmark of near-term domestic rate expectations – had fallen to an over one-month low of 5.41%.
Both the one- and five-year swap rates rose by the most in over a month after the GDP data. Traders had expected a reading as high as 7.5%, above the median 7.2% in an Informist poll of economists. The RBI's forecast for September quarter GDP growth was 7.0%. Some traders had been hoping that a reading close to the central bank's forecast would have opened up space to ease policy in February as well, but those hopes were completely dashed, dealers said.
"I think the market had quite a high expectation for the reading and it was much higher than even that," said a dealer at a primary dealership. "This is the opposite from exactly one year ago when a really bad print had actually started this rate cut cycle – now inflation is the only argument the MPC has to continue." The rate-setting panel has cut the policy repo rate by 100 basis points between February and June to the current 5.50%.
Some traders still held on to their rate cut hopes – though they too trimmed their positions and hit stop-losses – as they were of the view the RBI governor would not have hinted at scope for policy easing without an underlying intention to cut rates. Moreover, they said the weak nominal GDP growth and past comments from central bankers still showed the possibility of rate easing, dealers said. RBI officials said at the last policy meeting that while Jul-Sept growth will be strong, the growth trajectory could be weaker starting in the December quarter due to external risks. Meanwhile, nominal GDP growth in Apr-Sept was 8.8%, lower than the government's Budget estimate of 10.1%.
OUTLOOK
OIS rates are not traded Saturday. Swap rates may inch higher Monday as traders position for the MPC's three-day meeting starting Wednesday after the higher-than-expected GDP growth, dealers said. Volumes may be significant on Monday and Tuesday but fall in the rest of the week as the six-member panel deliberates the interest rate trajectory. Most traders now expect a pause in rates next week, after betting on a 25-basis-point cut before the GDP data.
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 currency hit a record low of 89.4950 a dollar last week and approached it again this week.
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 | THURSDAY | |
1-year OIS | 5.46% | 5.43% |
2-year OIS | 5.47% | 5.42% |
5-year OIS | 5.76% | 5.71% |
2-year MIFOR | 5.86% | 5.81% |
5-year MIFOR | 6.34% | 6.29% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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