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Informist, Wednesday, Jan. 28, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended down across tenures Wednesday, as traders bet on easing liquidity conditions after the Reserve Bank of India advanced the dates of its open market operation auctions by a week, and provided a prepayment option for any amount borrowed at the 90-day variable repo rate auction it will conduct on Friday, dealers said. Moreover, the five-year overnight indexed swap rate failed to sustain a rise above the key technical level of 6.18% and offshore flows to pay fixed rates were minor, they said. 

 

The one-year swap rate ended at 5.58%, from 5.59% Tuesday. The five-year swap rate closed at 6.15% against 6.18% the previous day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 468.80 billion, down from INR 696.35 billion Tuesday. 

 

The five-year OIS rate had ended at its highest in over a year Tuesday, as offshore traders paid fixed rate contracts. Wednesday, offshore activity was negligible, and instead, domestic traders chose to book profits on their paid positions after the five-year OIS failed to sustain a rise above the key 6.17-6.18% level. 

 

"Technically, it (5-year OIS) has peaked for now," a dealer at a state-owned bank said. "6.17-6.18% was a resistance, so that is why it is just passing time currently below those levels. This is just a temporary respite. Offshore presence is barely there today (Wednesday), but whenever offshore is active again, they will continue to pay." 

 

Even as domestic traders bet on easing liquidity, they were unsure when the overnight Mumbai Interbank Offered Rate would be set below the repo rate. The 5-year OIS rate is seen falling to 6.10% in the near-term before rising again, dealers said.

 

Some traders had feared that the RBI's Monetary Policy Committee had ended its rate-cutting cycle, after the RBI announced a 90-day variable rate repo auction, since its tenure crosses the February policy meeting and is likely to include the April policy meeting as well. However, the RBI Tuesday said that traders participating in the 90-day variable rate repo auction on Friday will have the option to prepay the amount borrowed, indicating that the MPC would still have the option of cutting rates. Albeit the fall in swap rates Wednesday did not reflect any expectations of a rate cut in the near-term, dealers said, and was solely based on expectations of improved liquidity. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 836.87 billion Tuesday, up from INR 569.87 billion Monday.

 

"I don't see any meaningful movement in OIS today (Wednesday). After excessive paying (Tuesday), it created a lucrative value proposition, so there's some receiving," a trader at a primary dealership said. "Until Budget and MPC, people don't have any aggressive view on rate cuts."

 

OUTLOOK

On Thursday, overnight indexed swap rates will track overnight movement in US Treasury yields after the outcome of the US Federal Open Market Committee's meeting, even though the policy decision is seen as a "non-event", dealers said. At 1800 IST, the CME FedWatch tool showed that Fed fund futures reflected a 97.2% probability of a status quo on rates early Thursday. Traders await remarks from US Federal Reserve Chair Jerome Powell and other Fed officials for guidance on the future path of interest rates. 

 

The movement of swaps will hinge on offshore flows, as they continue to pay fixed rates, dealers said. Until the Budget for FY27 is presented on Sunday, which will indirectly impact swaps through movements in bond yields, and the outcome of the RBI's Monetary Policy Committee next week is known, swaps are expected to trade in a narrow range, if not for offshore activity, dealers said.   

 

Traders will also monitor developments in the India-US trade negotiations, crude oil prices, and the global geopolitical situation. On Thursday, the one-year swap rate is seen at 5.52-5.68% and the five-year at 6.03-6.25%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.58%	5.59%
2-year OIS	5.73%	5.76%
5-year OIS	6.15%	6.18%
2-year MIFOR	6.14%	6.15%
5-year MIFOR	6.56%	6.59%

 

End

 

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

 

Edited by Saji George Titus

 

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