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Informist, Wednesday, May 13, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended mixed Wednesday. An intraday rise in crude oil prices along with a fall of the rupee pushed up swap rates, dealers said, with the one-year swap ending at its highest since Apr. 7. However, the rise in swap rates maturing in more than a year was limited as some participants received fixed rates amid lack of escalation in the West Asia war.

 

"Swap rates are following crude only," a dealer at a private sector bank said. "The movement in swap rates is stemming from crude and the rupee."

 

The one-year swap rate ended near the day's high at 6.09% Wednesday, up from the day's low of 6.02% and 6.05% on Tuesday. The one-year swap rate ended higher as traders feared a rise in retail fuel prices, dealers said. Traders also expect the inflation print in the subsequent months to rise, which will push the short-term swap rate higher, they said.  

 

Moreover, Reserve Bank of India Governor Sanjay Malhotra's comments on expectations of a hike in fuel prices raised concerns, dealers said. An increase in retail fuel prices by the Centre is "just a matter of time" if the West Asia war is prolonged and oil prices remain elevated, the governor said at a conference hosted by the Swiss National Bank and the International Monetary Fund in Switzerland Tuesday, Bloomberg reported Wednesday.

 

With expectations of retail fuel price hikes later in May and inflation likely to flare up, traders now expect the RBI's Monetary Policy Committee to hike interest rates as soon as in August, which pushed up the one-year swap rate, dealers said. 

 

The five-year swap rate ended at 6.66%, down from 6.68% Tuesday. The five-year swap rate traded in a thin band near the end of trade as traders likely paid one-year OIS to receive the five-year swap rate. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 1.05 trillion at 1700 IST, up sharply from INR 717.55 billion Tuesday. 

 

"...In the morning, there was some receiving as Brent was slightly lower and import duty news was also positive," a dealer at another private sector bank said. "Later (in the day), there were some foreign flows, but not from a lot of participants. Traders have no idea what positions to take at current levels."        

 

Brent crude for delivery in July was near $108 per barrel at 1700 IST, up from $106 per barrel at 0900 IST but similar to over $107 per barrel at the end of Indian trading hours Tuesday. Iran said the US must accept Tehran's latest peace proposal or risk the collapse of the agreement, after US President Donald Trump said the West Asia truce was on the brink of failure, according to media reports. At 1700 IST, the benchmark 10-year US Treasury yield was 4.47%, the highest in almost a year and up from 4.43% at 1700 IST Tuesday. 

 

OUTLOOK

As has been the case since the war in West Asia began, swap rates on Thursday will track crude oil prices and developments in the US-Iran peace negotiations, dealers said.

 

Traders have opposing views on liquidity, with some expecting it to improve in the next month or so following the RBI's transfer of surplus to the Centre, which is expected by the end of May. Most traders expect liquidity to shrink going ahead, as has been the trend since the new financial year began in April, dealers said.

 

Traders also expect the government to raise petrol, diesel and cooking gas prices to support oil marketing companies, which are losing money on retail sales after crude oil prices shot up because of the war. If pump prices rise, CPI inflation could climb towards the top end of the RBI's 2-6% tolerance band later in the financial year 2026-27 (Apr-Mar), dealers said. Swap rates have already factored in multiple repo rate hikes in India in FY27 and beyond and are largely pricing in a hike in retail energy prices. Dealers are just unsure of when such a price hike would happen. 

 

The movement in US Treasury yields, the rupee, and overnight money market rates will also affect swaps. On Thursday, the one-year swap rate is seen at 5.95-6.15% and the five-year swap at 6.40-6.73%.

 

	At 1700 IST	TUESDAY
1-year OIS	6.09%	6.05%
2-year OIS	6.30%	6.28%
5-year OIS	6.66%	6.68%
2-year MIFOR	6.93%	6.93%
5-year MIFOR	7.28%	7.29%

 

End

 

US$1 = INR 95.7050

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

 

Edited by Avishek Dutta

 

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