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Informist, Thursday, Feb. 5, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended slightly higher Thursday after reversing an early fall. Traders unwound their received fixed rate bets after the sharp fall in the five-year OIS rate over the past two sessions and on caution before the Monetary Policy Committee's rate decision Friday. The Reserve Bank of India's rate-setting panel is not expected to move on rates and stance but the central bank's commentary on liquidity is seen influencing OIS rates going ahead, dealers said.

 

The one-year swap rate ended at 5.51%, the same as on Wednesday. The five-year swap rate closed at 6.09% against 6.08% the previous day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform surged to INR 939.40 billion from INR 572.65 billion Wednesday.

 

The five-year OIS rate rose to a high of 6.12% from a low of 6.05?rlier in the day. Domestic traders unwound their received fixed rate bets on the five-year swap as it failed to fall below the psychologically crucial 6.05% in early trade, dealers said. This was seen as the lower edge of the expected trading range before the MPC outcome.

 

"There was no reason for the five-year OIS rate to go below 6.05?fore the policy. It went there and then it stopped," a dealer at a primary dealership said. "The movement up to 6.08% was just general unwinding, then someone really hit the market hard and in five minutes it was at 6.11%."

 

An unexpected rise in the Mumbai Interbank Forward Outright Rate also pushed up OIS rates. Some traders had received OIS rates Wednesday betting on a further fall in the MIFOR rates, following the RBI's $10 billion, three-year dollar-rupee buy-sell swap auction Wednesday. Instead, the forward rates in the foreign exchange market were up Thursday. Swap rates cooled from the highs as benchmark government bond yields fell to an over one-week low following the result of an open market operation auction to buy bonds by the RBI, where the central bank set cut-off yields sharply lower than traders had expected, dealers said. The 10-year benchmark gilt yield ended 5 basis points lower at 6.65% Friday.

 

"It is a positional unwinding that has taken place," a dealer at a foreign bank said. "Most of the flow is domestic, not offshore. People have taken positions in MIFOR and got priced out of that, so they need to get rid of their (received fixed rate) positions (in OIS)."

 

The overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – remained well below the policy repo rate of 5.25%. On Thursday, it was set at 5.09%, against 5.04% the previous day and 5.3% Tuesday – all leading up to the policy decision on Friday. There was no significant move in short-term swap rates but volumes surged. The trade in the one-month OIS rate was INR 150.95 billion Thursday, nearly five times the average traded amount of INR 32.04 billion in January.

 

Swap rates had fallen earlier in the way. Most offshore traders had unwound their paid fixed rate bets and some were receiving fixed rates after India and the US agreed to a trade deal Monday evening. Dealers' expectations on the Reserve Bank of India's liquidity management and monetary policy actions were mixed. Some said the central bank may not announce further liquidity infusion operations in the coming week after the trade deal was struck. The inflow of dollars from foreign investors is expected to increase rupee liquidity in the domestic banking system.

 

Others said that even without fresh operations, the RBI will likely commit to maintaining surplus liquidity in the banking system over the next few months to better transmit repo rate cuts that took place from February to December last year. A lack of tangible liquidity infusion measures are likely to lead to a rise in OIS rates after the policy outcome, dealers said. 

 

OUTLOOK

On Friday, OIS rates may open steady before RBI Governor Sanjay Malhotra details the outcome of the MPC meeting and other policy measures at 1000 IST. The monetary policy decisions will lend further cues to swap rates, dealers said. 

 

The MPC is widely expected to maintain a status quo on the repo rate at 5.25% and policy stance at "neutral". Several participants see the terminal repo rate at 5.25%, with the MPC likely to opt for a prolonged pause. The commentary on liquidity and the market's expectations on the MIBOR fixing following the policy outcome will lend direction to the OIS rates, dealers said.

 

Traders may also track movement in US Treasury yields, Indian government bond yields, crude oil prices and the rupee's movement for direction on swap rates. The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.00-6.20%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.51%	5.51%
2-year OIS	5.66%	5.64%
5-year OIS	6.09%	6.08%
2-year MIFOR	6.05%	6.02%
5-year MIFOR	6.55%	6.54%

 

End

 

US$1 = INR 90.36

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

 

Edited by Deepshikha Bhardwaj

 

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