India IRS Review
Steady before MPC decision Fri; most traders see repo unch
This story was originally published at 20:27 IST on 4 December 2025
Register to read our real-time news.Informist, Thursday, Dec. 4, 2025
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates ended steady Thursday due to caution ahead of the Monetary Policy Committee's rate decision Friday. Traders are not pricing in a significant chance that the Reserve Bank of India's rate-setting panel will cut the repo rate to 5.25% from 5.50%, with most betting that the panel will hold rates for the third straight meeting, dealers said.
The one-year swap rate ended at 5.48% for the third straight day and the five-year swap rate was at 5.82%, also the same as Wednesday. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform rose to INR 512.05 billion from INR 425.60 billion Wednesday.
Short-term swap rates, which had risen Wednesday as traders pared their rate cut bets, inched lower Thursday on the eve of the policy. The three-month and one-year contracts were the most traded tenures Wednesday ahead of the rate decision, with traders likely tweaking their positioning heading into the policy outcome, dealers said.
"The market seems confident it is well positioned before the rate decision," a dealer at a primary dealership said. "The 1-year OIS is showing 8 basis points of cut in December (nearly a 30% chance of a 25-bps rate cut) and people seem to be favouring short-term g-sec if they want to play on rate cuts."
Rate cut hopes have swung wildly in the two weeks heading into the policy decision. On Nov. 24 RBI Governor Sanjay Malhotra had said that the central bank had received no signals to show that the scope for monetary policy easing had reduced since October. CPI inflation had fallen to a record low of 0.25% in October. This had led traders to price in nearly a 90% chance of a rate cut in December. Since then, data showed India's GDP growth rose to a six-quarter high of 8.2% in Jul-Sept, dashing most traders' bets of further policy easing Friday.
Even with the strong GDP reading, traders hope that the Monetary Policy Committee will look at forward-looking growth prints that are likely to suffer from the 50% US tariff on India's exports to the world's largest economy. Meanwhile, factors such as US Treasury yields and the Mumbai Interbank Outright Rate were sidelined with focus on the domestic rate decision. Hedging activity of corporate houses also declined, though some corporates were paying fixed rates, dealers said.
Traders were of the view that the Monetary Policy Committee would not be in a position to cut rates and make use of the space it had outlined by the next policy review in February if it maintains status quo in December. CPI inflation would have picked up by then from the current lows, with a rise in the trajectory to 4% or higher in 2026 likely to deter the panel from monetary policy easing, dealers said.
"He (RBI governor) doesn't have a choice. It is as simple as that," a dealer at a primary dealership said. "Any logic you apply and a cut is the only answer."
OUTLOOK
Swap rates are likely to open steady Friday before RBI Governor Malhotra announces the decision of the Monetary Policy Committee at 1000 IST. Traders have largely priced in status quo on rates at the meeting after higher-than-expected GDP growth in the September quarter. Swap rates will fall sharply if the panel does decide to cut the repo rate, dealers said.
After the decision, market participants will be more focused on comments by the RBI governor and the panel on the future direction of rates. A rate cut of 25 bps may pull down the one-year swap rate to 5.40% and any hints of further easing may lead the rate to fall below the psychologically crucial mark.
No rate cuts may lead to a rise to 5.52-5.55%, where traders will begin receiving swap rates again on a positive return against the MIBOR fixing, dealers said.
The rupee's movement against the dollar is also being closely tracked. Some traders fear the RBI may avoid cutting rates amid the rupee's recent weakness. The domestic currency fell to a record low of 90.42 a dollar Thursday, before recovering to 89.98 a dollar by the end of the session.
The overnight movement in US Treasury yields may also lend cues, though the impact of the global cue may be limited around the key domestic event, dealers said. Investors also await the delayed US Personal Consumption Expenditures Price Index data for September that will be released Friday, ahead of the US Federal Open Market Committee's policy decision next week.
Some traders said the RBI may avoid a rate cut this week and decide on it in February after gauging the tone of the FOMC and preserve the interest rate differential in the face of rupee weakness. The one-year swap rate is seen at 5.35-5.55% and the five-year rate is seen at 5.68-5.85%.
At 1700 IST | WEDNESDAY | |
1-year OIS | 5.48% | 5.48% |
2-year OIS | 5.52% | 5.52% |
5-year OIS | 5.82% | 5.82% |
2-year MIFOR | 6.04% | 6.02% |
5-year MIFOR | 6.48% | 6.49% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2025. All rights reserved.
To read more please subscribe
Share this Story:
