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Informist, Thursday, Jun. 4, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended the eve of the Reserve Bank of India's Monetary Policy Committee decision steady, with traders rebalancing their books ahead of the key policy decision. Trade was choppy, tracking an intraday movement in crude oil prices, with some offshore flows on both the receive and pay sides, dealers said. 

 

The one-year swap rate ended at 6.12% Thursday, almost the same as 6.11% Wednesday. The five-year OIS rate ended at 6.63%, the same as Wednesday. The one-month OIS rate – which is viewed as an indication of the policy outcome Friday – ended at 5.45%, near the RBI's marginal standing facility rate of 5.50%, and thereby almost pricing in a 25-basis point rate hike at the policy decision Friday, dealers said. The one-year swap rate and five-year swap rate have risen 27 bps and 32 bps, respectively, since the last MPC decision in April.  

 

"Today is just based on position adjustments, it is not just one factor that is affecting. Tomorrow is policy, based on views, someone will cut their position, someone has taken fresh positions or built theirs," a dealer at a private sector bank said. 

 

The five-year swap rate traded in a range of 6.60-6.67% Thursday, and the one-year in a range of 6.09-6.16%. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 1.09 trillion, sharply higher than INR 811.80 billion Wednesday. Offshore traders were also active, which added to volumes, with some receiving fixed rates and buying gilts earlier in the day, dealers said. Some offshore traders paid fixed rates expecting the rate-setting panel to hike the repo rate Friday.

 

Intraday movement in crude oil prices also lent direction, dealers said. Brent crude oil futures for delivery in August fell to $95.41 per barrel at 1700 IST from $96.65 at 0900 IST, and down from $97.99 at the end of swap market hours Wednesday. Al Arabiya reported that the US-Iran peace deal was in its final stages, while news of Lebanon possibly entering a ceasefire within the next 24 hours also aided the fall, dealers said. Intraday, swaps tracked a rise in crude oil prices, on news of Israel striking Lebanon. However, the rise in swaps was capped by optimism about a favourable policy decision Friday, dealers said.  

 

"Market is holding well today inspite of the news of bombings, earlier in the morning there were some offshore guys receiving and hope of peace deal is also there," a dealer at a primary dealership said. "Now, it all depends on policy, we can see a 20-bps move either side."

 

OUTLOOK

On Friday, swap rates are likely to open steady ahead of the outcome of the Monetary Policy Committee's rate decision Friday, dealers said. However, if a peace deal between US and Iran is announced, swaps could tumble. Such a deal could also positively alter the MPC's commentary, though as long as oil supply chains are broken, the fear of inflation rising persists, dealers said. The uncertainty is about when the rate-setting panel will begin raising the repo rate, given the increased crude oil prices and rising inflation, they said.

 

Short-term swap rates have more scope for a fall Friday, and the one-year OIS could fall 10 to 20 bps if the MPC holds the repo rate steady, since it's currently pricing in around 100 bps of rate hikes within 12 months, dealers said. However, since a rate hike is seen inevitable, swaps maturing in more than a year could remain elevated, dealers said.

 

Traders expect the rate-setting panel to opt for a "hawkish hold" Friday. One of the three external members of the panel may vote for a rate hike, dealers said. A few traders expect the panel to change its stance to "withdrawal of accommodation" from "neutral". Traders also expect the RBI to cut its GDP growth forecast for the financial year 2026-27 (Apr-Mar) by 20-30 basis points while the estimate for FY27 CPI inflation could be raised to above 5% from 4.6% currently, dealers said. If the inflation forecast is raised by 50 bps, the rate hike cycle could be quicker, dealers said. 

 

Dealers hope the central bank will announce measures to curb the rupee's depreciation, weakening the case for a policy repo rate hike. Some dealers expect more dollar-rupee buy-sell swap auctions to be conducted after the RBI held one last week. Swaps could surge if the central bank does not announce measures to attract capital inflows at the policy decision Friday, dealers said. Traders expect the RBI to announce concessions on external commercial borrowings by banks and corporations, or subsidies on hedging costs for dollar exposure. The RBI could also offer concessions on interest rates on foreign currency non-resident deposits for banks, dealers said. Such measures could pull down money market rates while stabilising the rupee, dealers said.

 

Traders have mixed views on liquidity measures, with some saying it will be comfortable once the RBI's transfer of surplus to the Centre for FY26 is reflected in the banking system. Others expect the overnight Mumbai Interbank Outright Rate to remain above the repo rate as the central bank is unlikely to infuse durable liquidity in the system to avoid pushing up inflation, dealers said. 

 

The movement of crude oil prices and US Treasury yields could also lend cues, but the impact of the global triggers is likely to be limited intraday with larger focus on the policy. Along with RBI Governor Sanjay Malhotra's address at 1000 IST, traders will also tune into the post-policy press conference at 1200 IST. 

 

After the policy outcome, traders will position for the scheduled release of India's GDP data for the March quarter, at 1600 IST. An Informist poll of 16 economists expects the GDP growth print at 7.3%, down from 7.8% in the December quarter, similar to traders' expectations. The one-year swap rate is seen at 5.90-6.40% and the five-year at 6.50-6.90%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	6.12%	6.11%
2-year OIS	6.33%	6.34%
5-year OIS	6.63%	6.63%
2-year MIFOR	6.78%	6.75%
5-year MIFOR	7.12%	7.07%

 

End

 

US$1 = INR 95.7850

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

 

Edited by Avishek Dutta

 

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