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Informist, Thursday, May 14, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended mixed Thursday, the same as Wednesday. Traders paid short-term fixed rates in early trade on expectations of higher-than-estimated WPI inflation for April, dealers said. However, later in the day, slight easing of Brent crude oil prices and a report about the Centre mulling a reduction in tax on foreign investors on their Indian bond holdings helped swap rates, they said.  

 

"Today (Thursday), the market was very volatile due to two very different cues," a dealer at a primary dealership said. "There was receiving in the morning due to expectation of higher WPI, then the reports on the tax reduction came. Traders then readjusted their positions, and we ended near the opening levels."    

 

The one-year swap rate ended at 6.09% Thursday, down from the day's high of 6.16%, and flat against Wednesday. The expectation of higher inflation prints in subsequent months rose after the WPI print for April was higher than expectations, dealers said.

 

WPI inflation in India rose to a 42-month high in April on the back of a significant jump in fuel and power inflation stemming from the energy crisis amid the West Asia war, data released by the commerce ministry Thursday showed. The print was well above economists' consensus estimate of 5.5% in an Informist poll. However, some dealers said WPI core inflation was well within expectations, which limited the rise in short-term rates. WPI core inflation rose to a 43-month high of 5.0% in April from 3.7% in March.

 

The higher-than-expected WPI inflation further strengthened the view of rate hikes, which also pushed up swap rates, dealers said. "At the current levels, the one-year swap rate is factoring in three rate hikes," a dealer at a private sector bank said. "I do not think (Reserve Bank of India's) governor will announce hike in the June meeting, tone can be negative. All the three rate hikes will be in the second half of the current calendar year." 

 

The five-year swap rate ended at 6.61%, down from 6.66% Wednesday. 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 924.45 billion at 1700 IST, slightly lower than INR 1.05 trillion Wednesday. 

 

Market sentiment also turned positive following the outcome of US-China talks on the West Asia war, dealers said. Iran allowed 30 vessels, including some Chinese ships, to transit the Strait of Hormuz after reaching an agreement on Iranian management protocols for the waterway, according to media reports. US President Donald Trump and Chinese President Xi Jinping both agreed on reopening the Strait of Hormuz and that Iran should never obtain a nuclear weapon.

 

Brent crude for delivery in July was near $105 per barrel at 1700 IST, down from nearly $108 per barrel at the end of Indian trading hours Wednesday.

 

OUTLOOK

As has been the case since the war in West Asia began, swap rates on Friday 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. Traders expect a surplus transfer of INR 2.7 trillion to INR 3.5 trillion. Some 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. Traders expect a price hike of INR 5 to INR 30 per litre. 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 Friday, the one-year swap rate is seen at 5.95-6.15% and the five-year swap at 6.50-6.82%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	6.09%	6.09%
2-year OIS	6.27%	6.30%
5-year OIS	6.61%	6.66%
2-year MIFOR	6.90%	6.93%
5-year MIFOR	7.24%	7.28%

 

End

 

US$1 = INR 95.76 

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

 

Edited by Avishek Dutta

 

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