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Informist, Monday, Apr. 6, 2026

 

--India's 1-year OIS falls 19 bps Mon, most in a day since Apr 6, 2023

--India's 5-year OIS falls 17 bps Mon, most in a day since Apr 6, 2023

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended sharply lower as traders unwound bets on an immediate repo rate hike by the Reserve Bank of India's Monetary Policy Committee which began its three-day meeting Monday, dealers said. Such a large fall was last seen three years ago, when the rate-setting panel had refrained from raising policy rates despite a majority of market participants at the time expecting it to do so.

 

The one-year swap rate ended at 6.18%, down from 6.37% Thursday. The five-year OIS rate ended at 6.70%, slumping from 6.87% at the end of the previous session. Money markets were shut Friday for Good Friday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 546.15 billion, down from INR 672.30 billion Thursday.

 

"I think people have realised it is futile trying to position for a rate hike on Wednesday," a dealer at a private-sector bank said. "The positioning had become too heavy. I personally don't think even the commentary will be too hawkish."

 

The one-month swap rate ended 20 basis points lower Monday at 5.40%, with the pricing still reflecting about a 50% chance of a 25-basis-point rate hike. However, expectations of a 50-bp rate hike, which was partly being priced in last week, have all but disappeared since the RBI has been able to calm the rupee's fall through non-monetary policy measures, dealers said.

 

On Mar. 27, the RBI had directed authorised dealers to cap their onshore net open daily forward positions at $100 million by Apr. 10. Wednesday, the regulator barred authorised dealers from offering non-deliverable forwards to onshore or offshore clients. The curtailing of speculative positions helped the rupee rise nearly 2% Thursday after hitting a record low of INR 95.22 a dollar Mar. 30.

 

Moreover, the RBI is seen projecting CPI inflation through the financial year 2026-27 (Apr-Mar) at 4.5-5.0%, not high enough to prompt rate hikes, dealers said. The central bank's inflation was retained at 4% for FY27-FY31, within a tolerance band of 2-6%. Hopes of de-escalation in the West Asia war also led to offshore traders unwinding their received fixed rate bets, dealers said. 

 

According to media reports, Pakistan had put together and shared a plan for a ceasefire between the US and Iran. While Brent Crude for June delivery was near $110 a barrel in the first half of trade, propping up swap rates, the contract traded at around $108 a barrel after the news.

 

This helped the one-year swap rate fall steadily and erase the sharp rise seen Thursday. However, the contract was still pricing in four rate hikes of 25 bps each by the Monetary Policy Committee, dealers said.

 

"A lot of the market was froth or positioning," a dealer at a primary dealership said. "This correction was going to happen at some point or another. It is better it is happening before policy (decision) rather than on the day itself (Wednesday)."

 

OUTLOOK

On Tuesday, swaps may open steady on caution before the RBI's Monetary Policy Committee's decision is announced Wednesday. Developments in the military conflict in West Asia between US-Israel and Iran will have a significant impact on the rate view in India and the US, which may lead to a sharp move in swap rates as well.

 

Traders widely expect the Monetary Policy Committee to keep status quo on the policy repo rate at 5.25%, especially with the rupee having recovered from the record low hit last week against the dollar. News of a potential timeline to reopen the Strait of Hormuz, a vital oil supply route, may lead to traders reversing their paid fixed income bets, pulling swap rates down sharply again after the recent volatility, dealers said. 

 

The five-year OIS rate is on track to test 7.00%, its highest level since October 2022, if crude oil prices continue climbing, dealers said. A cooling of hostilities in West Asia may result in the five-year swap falling to as low as 6.30% as a fall triggers stop-losses on paid fixed-rate positions. Some traders expect rates to remain above pre-war levels even if oil prices fall, dealers said. The one-year swap rate is seen at 5.90-6.40% and the five-year at 6.45-7.00% Tuesday.

 

	At 1700 IST	THURSDAY
1-year OIS	6.18%	6.37%
2-year OIS	6.40%	6.57%
5-year OIS	6.70%	6.87%
2-year MIFOR	6.95%	7.00%
5-year MIFOR	7.08%	7.12%

 

End

 

US$1 = INR 93.06

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

 

Edited by Rajeev Pai

 

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