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Informist, Monday, Jun. 15, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower due to a sharp fall in crude oil prices after the US and Iran said they had agreed on a memorandum of understanding to end the war in West Asia. However, OIS rates had already fallen Friday since traders bet on the deal coming through over the weekend and ended off lows as traders took profit on their received fix rate positions, dealers said. 

 

The one-year swap rate ended at 5.93% Monday, the lowest since May 8 and down from 5.97% Friday. The five-year swap rate ended at 6.32% Monday, the lowest closing since Jun. 10, from 6.34% Friday. During the day, the rate fell to 6.26%, its lowest in over three months. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 473.75 billion, sharply lower than INR 767.20 billion on Friday.

 

Early on Monday, US President Donald Trump announced a long-awaited peace deal with Iran, aimed at ending the war, lifting the US blockade of Iran, and reopening the Strait of Hormuz. The announcement triggered a sharp fall in oil prices, with Brent crude oil for August delivery down to $82.82 per barrel at 1700 IST Monday from $87.10 per barrel at the same time Friday, which marked the end of Indian market hours last week.

 

A significant section of the market had anticipated a rate hike at the next policy review after the RBI raised its CPI inflation forecast for the financial year 2026-27 (Apr-Mar) to 5.1%, from 4.6?rlier. This may still prompt rate hikes later in the year, especially with the Southwest monsoon expected to be deficient, pushing up food inflation, dealers said. Rate hikes of over 50 basis points are still priced in to the one-year swap rates, beginning in October.

 

"The August rate hike has largely been priced out of the curve now, also because the RBI itself doesn't seem to be in a hurry to hike and now the external pressure has almost resolved itself," a dealer at a primary dealership said. "The market may take time to shift further downward but I don't think below 6.20% is not going to be possible in the near-term."

 

Banks had already begun unwinding their paid fixed rate positions that they had taken to hedge their bond holdings as the two sides were seen close to a deal and oil prices fell last week. As swap rates have risen, receiving interest from mutual funds has waned, with floating rate corporate bond issuances also likely to decline with bond yields falling, dealers said.

 

Most traders disregarded the jump in WPI inflation to 9.68% in May from 8.26% in April under a new series, since the central bank does not track wholesale price rise. Moreover, the pass-on to retail inflation has been modest, dealers said. In May, CPI inflation was at 3.93%, data released Friday showed. The reading was below both market estimates and the RBI's medium-term inflation target of 4% despite the war in West Asia completing three months by the end of May.

 

With the peace deal in place, the central bank may either lower its inflation estimates for FY27 or say that risks to inflation are now evenly balanced, rather than to the upside, as it had guided after meetings of the Monetary Policy Committee in April and June, dealers said. The RBI has raised its CPI inflation forecast to 5.1% in the June policy review from 4.6% in April, retained a comment saying there were upside risks to inflation, and also increased its forecast for the Indian crude oil basket to average $95 a barrel rather than $85 per barrel.

 

Should crude oil prices fall and stay there, the MPC may hold off on increasing the repo rate more 50 bps from the current 5.25%, dealers said. In May, market pricing of rate hikes had reached 125 bps in the succeedding 12 months.

 

"I'm not sure how much steepening of the curve is left. In fact, we may see a flattening of the curve as terminal (repo) rate expectations come down to 5.75% or 6.00%," a dealer at a private-sector bank said.

 

OUTLOOK

Swap rates may trend lower if the peace deal between the US and Iran continues without further issue until the official signing scheduled for Friday. The one-year OIS rate could fall to 5.80% while the five-year swap rate is seen falling to 6.20% if the peace deal continues as planned and the Strait of Hormuz is reopened, dealers said.

 

A likely liquidity boost due to the RBI's measures to shore up capital could temper a rise in short-term rates, dealers said. Most traders now do not expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The MPC may hike the repo rate in October, but a rate-hike in the near-term seems unlikely with the peace deal coming to fruition and May's CPI inflation lower than expected. 

 

Traders will also track the movement of US Treasury yields ahead of the outcome of the US Federal Open Market Committee's first meeting under newly appointed Chair Kevin Warsh next week, where a status quo on interest rates is expected, the commentary from the new chair on inflation and employment is being keenly watched to chart US rate expectations. 

 

Traders will also track any development on the inclusion of Indian government bonds on Bloomberg Index Services' flagship Global Aggregate Index after the RBI and the Centre unveiled a slew of measures to improve foreign inflows earlier this month, dealers said. Government sources said that such measures were intended to secure the inclusion. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. The review could be as soon as next week, dealers said. The movement of the rupee could also lend cues. The one-year swap rate is seen at 5.80-6.15% and the five-year at 6.20-6.42%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.93%	5.97%
2-year OIS	6.08%	6.12%
5-year OIS	6.32%	6.34%
2-year MIFOR	6.64%	6.65%
5-year MIFOR	6.85%	6.87%

 

End

 

US$1 = INR 94.71

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

 

Edited by Deepshikha Bhardwaj

 

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