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Informist, Wednesday, Apr. 8, 2026

--India's 1-year OIS falls 30 bps Wed, most in a day since Nov 24, 2016 

--India's 5-year OIS down 35 bps Wed, most in a day since at least Aug 2015 

By Janwee Prajapati and Cassandra Carvalho

MUMBAI – Overnight indexed swap rates slumped Wednesday after the announcement of a ceasefire between the US and Iran, coupled with a favourable outcome from the Reserve Bank of India's Monetary Policy Committee, led traders to unwind bets of rate hikes in India, with the first hike likely in Oct-Dec compared with earlier expectations of June, dealers said. 

The one-year swap rate ended at 5.85%, down from 6.15% Tuesday, hitting a low of 5.81% intraday. The swap fell 30 basis points on Wednesday, the biggest fall since Nov. 24, 2016. The two-year swap ended 36 bps lower, at the round figure of 6.00%, as offshore traders aggressively received fixed rates. The five-year OIS rate ended at 6.31%, down 35 bps – the largest one-day decline since at least August 2015. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 986.75 billion, sharply up from INR 791.05 billion Tuesday.

"What it moved (rose) in one-and-a-half months, OIS has reversed it (the rise) in three days, it has moved 50 bps in three days," a dealer at a private sector bank said.

Traders pared bets on rate hikes after the US and Iran agreed to a two-week ceasefire to negotiate a definitive peace agreement, dealers said. The US will stop attacking Iran in return for the opening of the Strait of Hormuz for the two-week period. Brent crude oil price for June delivery fell to $92.40 per barrel at 1700 IST, down $18.44 per barrel from the end of the trading session Tuesday.

Following this development, traders expected the RBI's Monetary Policy Committee to hike rates only in the second half of the current financial year that began April, instead of June, dealers said. Traders revised their expectation of a rate hike to 50-70 bps points in 2026-27 (Apr-Mar) from 100–125 bps earlier, they said.

With some traders taking fresh received positions, domestic traders hit stop losses on their paid fixed-rate bets, dealers said. Traders considered the five-year swap rate attractive to receive as it had over 110 bps spread with the overnight Mumbai Interbank Outright Rate, the floating leg of the OIS contract. The five-year swap rate ended near the psychologically crucial level of 6.30%, with further downside capped by asset-liability managers hedging their bond holdings, dealers said.

"Stop losses were hit and people (traders) unwound some hedged positions also," a dealer at a primary dealership said. "...OIS rates are mostly tied to crude oil prices, which is why the fall was sharp." The benchmark 10-year US Treasury yield also eased to 4.24% at 1700 IST, down 11 basis points from 4.35% at the end of India trading hours Tuesday.

Moreover, the MPC voted unanimously to leave the repo rate unchanged at 5.25% and retained its stance at "neutral", in line with expectations of market participants, dealers said. Near-term swap rates had reflected around a 40% chance of 25-basis-point repo rate hike Wednesday. The RBI projected India's FY27 CPI inflation at 4.6%, with upside risks, and India's FY27 GDP growth at 6.9%, with downside risks. Comments from the rate-setting panel suggested the bar for rate hikes was higher than traders had earlier priced in, dealers said.

The RBI Governor, Sanjay Malhotra, dismissed any concerns arising from the recent rise of the overnight indexed swap rates, adding that the Indian swap market is a "very thin market", and "not much should be read into it". A lot of the recent rise in OIS rates was seen not in line with fundamental views in the market and driven more by offshore hedge funds' paying interest driven by the West Asia war, dealers said. 

OUTLOOK

Swap rates will open tracking crude oil price movement on Thursday following overnight geopolitical developments around West Asia, dealers said. Concerns over the adherence to the ceasefire agreed to between the US and Iran Wednesday linger. Moreover, any significant movement in US Treasury yields will also lend cues to swap rates, dealers said.

After over a month of war, the US and Iran early Wednesday agreed to a two-week ceasefire in order to negotiate a definitive agreement for peace between the warring parties. Iran will open the Strait of Hormuz for two weeks. "The United States will work closely with Iran, which we have determined has gone through what will be a very productive Regime Change! There will be no enrichment of Uranium, and the United States will, working with Iran, dig up and remove all of the deeply buried (B-2 Bombers) Nuclear 'Dust'", Trump said in a post on Truth Social. Iran has already agreed to many of the 15 points of the proposed US peace plan, Trump said.

Traders await CPI inflation for March, due Monday, which is seen at 3.4% according to an Informist Poll of 13 economists, as the war in West Asia likely pushed fuel inflation higher. A print closer to 4.0% will once again spur bets of a quicker rate hike cycle, dealers said. Traders expect the rates to fall more as the expectation of a rate hike by the MPC ebbed. However, traders expect the five-year OIS to hover near 6.30%, as it is a key level, dealers said.   

The one-year swap rate is seen at 5.70-6.05% and the five-year at 6.25-6.80% Thursday.

End

US$1 = INR 92.58

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

Edited by Saji George Titus and Deepshikha Bhardwaj

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