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Informist, Thursday, Feb. 26, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates Thursday ended little changed from Wednesday's close due to lack of significant cues on interest rates, dealers said. The five-year swap rate reversed a fall to the psychologically crucial 6.00% mark intraday, its lowest in over a month, and inched higher by the end of trade.

The one-year swap rate ended at 5.50% for the third straight session. The five-year OIS rate ended at 6.06% against 6.05% Wednesday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform slumped to INR 224.05 billion from INR 576.65 billion Wednesday, largely due to a fall in the trading volume of swaps maturing up to three months.

Traders likely hit stop-losses on their paid fixed rate bets as the five-year swap rate fell below 6.02%, with receiving interest continuing for several sessions now near the psychologically crucial mark, dealers said. Traders had paid the five-year OIS rate near 6.15% on the view it may jump higher, after the benchmark rate hit an over one-year high of 6.2350% early in the month.

After the stop-losses, other traders took fresh paid positions and unwound their received bets at the 6.00% level on the five-year swap rate. This quickly pushed up the rate above even its previous close in muted trade volumes, dealers said.

"6% is a good level to pay," a dealer at a foreign bank said. "It looks like some domestic flow pulled it down to 6.00%, but after that it's just an opportunity to unwind (received positions) or pay again because fundamentals haven't changed."

The one-year swap was the most-traded contract Thursday ahead of India's GDP data in the new series with base year 2022-23 (Apr-Mar) at 1600 IST Friday. A poll of economists by Informist pegs the December quarter GDP growth at 7.5%. In the old series with base year FY12, the September quarter GDP growth was 8.2%.

This is not likely to induce fresh bets on further repo rate cuts and instead may reinforce the view that the Reserve Bank of India's Monetary Policy Committee will hold the repo rate at the current 5.25% through 2026-27 (Apr-Mar). However, some traders fear growth could be closer to 8% or higher, given it will be the first GDP reading – the previous base year revision had led to an increase in the growth rate, dealers said. This may reignite fears of repo rate hikes in Jan-Mar quarter of 2027, some portion of which is already being priced into the one-year swap rate, they said.

"I see GDP growth around 8% (in Oct-Dec). I don't think it's going to make much of a difference in the rate view but positioning will always be there before such major domestic data, though it is not very heavy," a dealer at a private-sector bank said.

OUTLOOK

On Friday, OIS rates may track bond yields in India and the US. The volatility may be limited and traders may avoid large bets before the release of India's GDP data at 1600 IST, dealers said.

Traders do not expect much volatility in swap rates up to one year, while the five-year OIS rate may not fall below the psychologically crucial 6.00% mark without a firm trigger, dealers said. If GDP growth for the December quarter is in line with or slightly lower than the Informist poll median of 7.5%, swap rates across tenures are likely to fall.

Traders are virtually unanimous in expecting a pause in rates in FY27 after members of the rate-setting panel said in the minutes of the February MPC meeting that they would remain data-driven. Further developments on the US-Iran front will be watched closely as the two sides meet for nuclear talks. Significant movement in the rupee and crude oil prices may also lend cues, dealers said.

Traders expect the overnight MIBOR to remain at or below the repo rate of 5.25% in the near term after RBI Governor Sanjay Malhotra's comments on Monday assuring surplus liquidity, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.15%.

End

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

Edited by Ashish Shirke

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