More Stories

Informist, Friday, May 22, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended off the day's lows Friday as the Reserve Bank of India's transfer of surplus to the Centre for 2025-26 (Apr-Mar) was lower than what most market participants had expected, dealers said. During market hours, the central bank said it will transfer a record INR 2.87 trillion surplus to the government. Some market participants had expected a transfer of at least INR 3 trillion, though some dealers said the INR 2.87 trillion figure was within expectations.

 

Swaps fell in early trade, tracking an overnight easing in US Treasury yields and Brent crude oil prices, as well as reports that the RBI's Monetary Policy Committee was not in favour of rate hikes to defend the rupee. Domestic traders, especially banks' asset and liability managers, along with some corporates, received fixed rates at levels seen as lucrative, they said. 

 

The one-year swap rate ended at 6.30% Friday, down from 6.36% Thursday, after trading in a range of 6.20-6.35%. The swap is pricing in nearly 150 basis points of policy rate hikes in the next 12 months. The swap has risen 13 bps this week. The five-year OIS rate closed at 6.82%, down from 6.85% Thursday, trading in a range of 6.77-6.84%. The five-year swap has risen 11 bps this week.

 

"The market was expecting around (INR) 3 (trillion RBI transfer of surplus), it was lower, so we saw some knee-jerk reaction where people cut their positions, but OIS (rise) is restricted (due to lucrative levels to receive). It (five-year OIS) hit 6.84%, but now again its 6.81%," a trader at a primary dealership said.

 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform fell sharply to INR 445.25 billion from INR 841.45 billion Thursday. 

 

Citing sources, CNBC TV18 reported early Friday that the RBI is not considering an off-cycle rate hike. Reuters also reported that the central bank is not in favour of raising interest rates to support the rupee. This comes a day after swaps jumped on a Bloomberg report that the RBI is considering rate hikes, among other options, to support the rupee.

 

Even as swaps are pricing in around a 50-bps rate hike by the MPC in June, several traders do not expect the rate-setting panel to hike the repo rate as early, making it lucrative to receive fixed rates at current levels, they said. However, changing rate expectations made swaps maturing in a year or less risky. Traders expect the spread between the one-year, two-year swaps and the five-year swap to compress further, if not invert, if the MPC hikes the repo rate. 

 

"I don't expect a rate hike yet, but I'd rather stay out of one-year (OIS) because it's too volatile, can't give a range for it either because it's moving 40 bps in a day," a dealer at a private sector bank said. The one-year swap had traded in a range of 6.05%-6.44% Thursday.

 

The overnight Mumbai Interbank Outright Rate, which serves as the floating leg for OIS contracts, jumped to its highest since Mar. 30 Friday, as surplus liquidity in the banking system fell to its lowest since Mar. 26 Thursday. Traders were expecting the RBI's transfer of surplus to ease the systemic crunch in durable liquidity, but a lower-than-expected transfer has led to increased expectations that the central bank will conduct dollar-rupee buy-sell swaps, especially as the June quarter nears its end, dealers said.  

 

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swap rates will track movements in US Treasury yields and Brent crude oil prices over the weekend. Some traders expect the US and Iran to inch closer to a peace deal, though traders are aware that both parties are standing firm on their demands. By the end of next week, it will be three months since the Strait of Hormuz closed for transport. 

 

If there is no end to the war in sight, traders may exit their received bets on fears of rising inflation. If the war does not end, the possibility of the MPC raising the policy repo rate in June will rise, they said.

 

As the RBI's transfer of surplus to the Centre was lower than expected, traders will now await measures from the RBI to boost systemic liquidity, with expectations of more dollar-rupee buy-sell swaps. Some traders also expect long-term variable rate repo operations. The central bank will conduct a $5-billion, three-year dollar-rupee buy-sell swap auction Tuesday, which had led to some traders receiving fixed rates earlier this week.  

 

The movement in the rupee and overnight money market rates will also influence swaps. Monday, the one-year swap rate is seen at 6.12-6.40% and the five-year at 6.60-6.90%.

 

	At 1700 IST	THURSDAY
1-year OIS	6.30%	6.36%
2-year OIS	6.52%	6.56%
5-year OIS	6.82%	6.85%
2-year MIFOR	7.07%	7.15%
5-year MIFOR	7.39%	7.46%

 

End

 

US$1 = INR 95.69

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

 

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.