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Informist, Friday, Dec. 12, 2025

By Aaryan Khanna

MUMBAI – Overnight indexed swap rates were steady Friday after November CPI data, released at 1600 IST, showed inflation was in line with expectations, dealers said. However, traders still do not expect further rate cuts by the Reserve Bank of India's Monetary Policy Committee and the US Federal Reserve in the next few months, which kept swap rates elevated.

The one-year swap rate ended at 5.46%, against 5.47% Thursday. The five-year swap rate ended at 5.92%, flat against the previous close. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 266.25 billion, slightly higher than INR 239.05 billion Thursday.

India's CPI inflation rose to 0.71% in November from a record low of 0.25% in October. Core CPI inflation was steady at 4.4% in both months. Some traders and economists were of the view that the reading gave room to the MPC to cut rates by another 25 basis points to 5.00%, after its rate cut by the same quantum last week. Even those with the view of a rate cut were split between February and April. Core inflation was also not a cause for concern after RBI Governor Sanjay Malhotra downplayed inflationary pressures after the MPC decision last week, dealers said. 

However, the one-year swap rate did not reflect any chances of a domestic rate cut in the next 12 months. Instead, swaps were factoring in a slight rise in the overnight Mumbai Interbank Outright Rate either due to a policy rate increase or liquidity tightening, dealers said. The bar for further rate cuts was seen high since India's GDP growth is likely to remain robust in the next few quarters after surprising on the upside in the June and September quarters, though it may trend lower from the 8.2% annual growth seen in Jul-Sept.

"The CPI reading was basically a non-factor," a dealer at a foreign bank said. "The market has stabilised from the paying we saw earlier this week but that doesn't mean that suddenly everyone will start receiving when there is no strong view of a rate cut."

The split view on further US policy easing had also made domestic traders jittery on taking big bets in swaps. Offshore traders had aggressively paid fixed bets in the first half of the week which they may now be reversing after the US Federal Open Market Committee cut its policy rate by 25 bps on Thursday, dealers said. While the median view of US Fed officials' was only of 25-bps more rate cuts in 2026, US Fed funds futures show a majority of market participants were pricing in a rate cut of 50 bps or more. Especially with elevated rates in both developed markets and Asian economies, dealers said the five-year swap rate would struggle to fall below 5.85%.

OUTLOOK

OIS rates are not traded Saturday. On Monday, swaps may track the overnight movement in US Treasury yields after comments by Fed officials scheduled Friday. The rupee's movement in early trade will also lend cues as the RBI is seen avoiding policy easing to better manage the currency's recent weakness, dealers said. The domestic unit fell to a record low of 90.56 a dollar intraday Friday.

Offshore flows are likely to continue to drive movement in OIS rates amid a lack of interest rate cues on the domestic front after last week's repo rate cut to 5.25%. Activity may continue to hold up next week but will decline in the Christmas week and heading into the new year as offshore traders close their accounts at the year-end or go on holiday, dealers said.

Traders are more focused on the CPI prints from January onwards, with the RBI projecting retail inflation to average 0.6% in the December quarter. India's GDP estimate for 2025-26 (Apr-Mar) in the first week of January may also be crucial for traders to take bets on further repo rate cuts by the MPC, dealers said. 

Traders will monitor developments in the India-US trade deal and may also track crude oil prices for cues. The one-year swap rate is seen at 5.40-5.55% and the five-year swap rate is seen at 5.85-6.02%.

End

US$1 = INR 90.42

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

Edited by Deepshikha Bhardwaj

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