More Stories

Informist, Friday, Dec. 5, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended off lows Friday after the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points, but traders were uncertain about scope for further rate cuts, dealers said. Swaps had not entirely priced in a rate cut Friday and fell sharply after the policy outcome. However, later in the day, traders unwound some received bets since the bar for another rate cut is extremely high and 5.25% may well be the terminal repo rate, dealers said. 

The one-year swap rate ended at 5.43% from 5.48% Thursday. During the day, the swap hit 5.39%, the lowest since May 4, 2022. The five-year swap rate ended at 5.80% against 5.82% Thursday. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform soared to INR 840.90 billion, from INR 512.05 billion Thursday.

The MPC cut the repo rate unanimously to 5.25% and RBI Governor Sanjay Malhotra said the growth-inflation balance continues to provide policy space. The central bank will conduct a two-tranche open market purchase of INR 1.00 trillion of gilts through auction this month, along with a dollar-rupee buy-sell swap of $5 billion. The tone and commentary of the rate-setting panel and of Malhotra were largely along expectations, dealers said. The RBI upgraded its FY26 GDP growth forecast to 7.3% from 6.8% earlier. The central bank lowered its FY26 CPI inflation forecast to 2.0% from 2.6% earlier. 

Swaps had not priced in a rate cut. Rate cut hopes had swung wildly in the two weeks heading into the policy decision. On Nov. 24, 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. However, Malhotra Friday, acknowledged that the current growth and inflation dynamics showed a "rare goldilocks period". While Malhotra's remarks were well-received by traders at first, there is no incentive to receive fixed rate contracts immediately, dealers said. The growth and inflation trajectory is seen stronger in the coming calendar year, according to the RBI's forecasts.   

"Policy statement was good only, but what happened to markets...," a dealer at a private sector bank said. "In OIS, the market is treating it as the last cut, from what the price action shows. The forward guidance that was very strong in the October policy was absent here (Friday) right. He said we (MPC) are data-dependent, if need be, we will do (cut rates further) and we are neutral. He did not give an explicit blessing to another rate cut."  

Traders also said that Malhotra did not firmly commit to maintaining 1% of banks' net demand and time liabilities and instead said the central bank would provide "sufficient" liquidity needed for monetary policy transmission. The INR-1.50-trillion liquidity infusion through the OMOs and dollar-rupee swap is likely to only offset outflows of advance tax and goods and services tax this month, dealers said. A slight rise in bond yields from the day's low also pushed up swap rates, dealers said. Traders now hope for policy easing in the US, to receive fixed rate contracts, dealers said.  

"I think the five-year (swap rate) will likely move upward," dealer at a private sector bank said. "One-year (swap rate) will take cues from the short-term view but the five-year will only move (fall) if there is a fall in global rates or there is significant weakness in our (India's GDP) growth."

OUTLOOK

Swaps are not traded Saturday. On Monday, swap rates will open tracking overnight movement in US Treasury yields and the rupee's movement early in the day. On the global front, investors await the release of the delayed US Personal Consumption Expenditures Price Index data for September, due Friday. Traders will watch out for the US Federal Open Market Committee's rate decision. Fed fund futures are pricing in an 87% chance of a 25-bps cut in the federal funds rate, dealers said.

Traders also await news on the appointment of the next US Fed chair as the current Chair Jerome Powell's term ends in May. US President Donald Trump said he has decided on his pick for the next Fed chair after making it clear he expects the appointee to cut interest rates.

On the domestic front, traders have no cues on rates until CPI inflation data for November is released next week. However, traders are more focussed on CPI prints January onwards, since inflation is seen rising in the near term. Chances of another cut in the repo rate are unlikely as of Friday, after the RBI delivered both a rate cut and measures to infuse liquidity, 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 increase chances of easing monetary policy. Traders may also track Indian Prime Minister Narendra Modi's two-day summit with Russian President Vladimir Putin. Closer ties with Russia could push an India-US trade deal to the backseat, dealers said.

Movement of crude oil prices may also influence swaps. The one-year swap rate is seen at 5.38-5.50% and the five-year rate is seen at 5.68-5.85%.

End

US$1 = INR 89.98

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

With inputs from Janwee Prajapati

Edited by

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.