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Informist, Monday, Jan. 12, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates eased slightly after India's CPI inflation was lower than expected, spurring some bets of further domestic monetary policy easing. However, with Oct-Dec inflation higher than the Reserve Bank of India's estimates, dealers said the chance of further rate cuts in India remains slim.

The one-year swap rate ended at 5.49%, flat against Friday. The five-year swap rate ended at 5.94%, from 5.96% at the end of the previous session. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform slumped to INR 141.30 billion from INR 214.55 billion Friday.

India's December CPI inflation came in at 1.33%, below the Informist poll forecast of 1.70%, due to a sharper-than-expected fall in food prices. Though some traders stepped up bets on a rate cut in February or April, for most the reading barely shifted the outlook that the RBI's Monetary Policy Committee will maintain status quo on rates in the near term. Core CPI rose to 4.6%--the highest in 28 months--but most traders brushed it off, linking the rise to a worldwide surge in prices of precious metals. Still, the December quarter CPI inflation averaged 0.8%, higher than the central bank's latest estimate of 0.6%.

"You can't start pricing in a rate cut to any of the liquid tenures such as the one-year because until the rupee is under pressure, traders will continue pricing a hike at the back end (of the period of the contract)," a dealer at a primary dealership said.

Intraday, comments from newly-appointed US Ambassador to India Sergio Gor and India's Commerce Minister Piyush Goyal suggested the next round of talks on the India-US Bilateral Trade Agreement was imminent, but it failed to have much impact on the local currency. The rupee ended steady at 90.1525 a dollar Monday after the central bank's dollar sales to protect the domestic currency.

The Monetary Policy Committee cut the policy repo rate by 125 basis points between February and December and is not seen in favour of another rate cut unless there is a sharp slowdown in GDP growth in Oct-Mar, dealers said. Domestic traders were also not keen to take aggressive bets due to the lack of diversity in either the rate view or firm triggers challenging the entrenched pricing that rate cuts would not happen, they said. The lack of offshore trade activity did not help matters.

"I think now we might see some more aggressive positioning before MPC meetings, but really there is nothing in the data that makes a clear case for a cut," a dealer at a private-sector bank said. "There may also be some better flows once the US situation sorts itself out. I think people are still trying to figure out what is happening between (US President Donald) Trump and the Fed (US Federal Reserve)."

The US Department of Justice served subpoenas on the Fed and its Chair Jerome Powell Sunday, opening a criminal investigation into the central bank over the renovation of its Washington headquarters. In a statement early Monday, Powell denied the subpoenas were because of his testimony or the renovation. He said they were a threat to the central bank's independence on deciding interest rates.

Trump has been pushing for the US Federal Open Market Committee to cut interest rates more aggressively and is likely to choose a candidate who will abide by this as the next Fed Chair, after Powell's term ends in May. Traders will now look for cues on the FOMC's January rate decision from the US CPI data due for release at 1900 IST Tuesday.

OUTLOOK

Tuesday, swap rates may track the overnight movement of US Treasury yields. After Monday's dull trade, some traders may receive short-term swap rates after the overnight Mumbai Interbank Outright Rate fell sharply, dealers said. The rate was set at 5.39% Monday and is expected to fall to near the repo rate of 5.25% in the coming days.

Offshore traders' activity may be limited ahead of the release of US CPI data for December after Indian market hours, dealers said. Fed funds futures reflected a 95% chance of status quo on rates at the FOMC's December meeting after the release, according to the CME's FedWatch tool. 

Swaps will also track the movement of gilt yields during the day, dealers said. Traders will closely track technical levels on swaps, with 5.89% seen as a strong support and 6.00% as a strong resistance, difficult to break without a firm trigger on either side, dealers said. 

Traders will also monitor developments in the India-US negotiations for a trade deal. They may also track crude oil prices and geopolitical developments for cues. Tuesday, the one-year swap rate is seen at 5.42-5.55% and the five-year at 5.88-6.02%.

End

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

Edited by Rajeev Pai

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