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Informist, Friday, Jul. 10, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower Friday, tracking a fall in crude oil prices after reports said that the US and Iran were continuing discussions to halt hostilities in West Asia, dealers said. Foreign banks continued to receive fixed rates on the five-year contract after getting inflows from foreign-currency non-resident bank deposits, they said.

 

The one-year swap rate closed at 5.77%, down from 5.81% Thursday. The five-year swap rate ended at 6.17%, down from 6.21% Thursday. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform cooled to INR 383.65 billion from INR 444.50 billion the previous day.

 

Brent crude for September delivery fell to $76.86 per barrel at 1700 IST Friday, down from $78.73 per barrel at the same time Thursday. Crude oil prices fell after US officials said no new strikes were reported as diplomatic discussions remain underway. Thursday, Iran carried out attacks on US military facilities in Gulf states in response to earlier US strikes on Iranian military infrastructure. A fall in crude oil prices keeps imported inflation in check and reduces pressure on the Reserve Bank of India's Monetary Policy Committee to hike rates.

 

The MPC is expected to keep the repo rate unchanged at 5.25% at its next two meetings in August and October, following comments by RBI Governor Sanjay Malhotra in June that talk of rate hikes was premature. Should tensions in the West Asia conflict ease, Brent crude futures will likely fall to near $70 a barrel and the five-year OIS rate would test the technical support at 6.07%, dealers said.

 

"It's a dance between where crude will go and where receiving will stop," a dealer at a primary dealership said. "Right now, it doesn't look like crude is in any hurry to rise beyond $80 (a barrel), and flows are constantly putting pressure (for OIS to fall). So the momentum in rates is to the downside."

 

Offshore traders and foreign banks have been receiving fixed rates over the past few days despite midweek geopolitical tensions, on the view that the repo rate is unlikely to rise soon, with the Indian crude basket in July averaging well below the RBI's estimate of $95 per barrel through 2026-27 (Apr-Mar). Meanwhile, foreign banks have begun receiving fixed rates after an influx of FCNR(B) deposits linked to an RBI measure announced in June.

 

Earlier this week, DBS Bank announced higher FCNR(B) rates for 3-5 year deposits, with HSBC following suit Friday. Last month, the RBI opened a concessional swap window for banks to park funds raised from their 3-5 year FCNR deposits at no hedging cost, with the scheme in effect till Sept. 30. The scheme is expected to bring in around $50 billion while improving rupee liquidity, both things helping to keep OIS rates across the yield curve in check. Instead of investing inflows in bonds, some banks wanted to receive OIS rates. However, the one-year swap rate still reflects a 50-basis-point repo rate hike next year, dealers said. 

 

OUTLOOK

Swap rates are not traded on Saturdays. On Monday, OIS rates will take cues from movements in crude oil prices and US Treasury yields, dealers said. A sustained escalation in the conflict may lead traders to reassess their view that the repo rate in India will not be hiked until December.

 

CPI inflation, the next crucial domestic rate trigger, is scheduled at 1600 IST on Monday. CPI inflation is projected to rise to 4.3% in June from 3.93% in May, according to the median of an Informist Poll. If inflation rises above 4%, it will be the first time in 17 months that retail inflation has topped the RBI's medium-term target. This is the last CPI reading scheduled before the MPC's next meeting in August. A softer-than-expected reading will reinforce bets on no rate hikes over the next three months, while a sharply higher number could revive fears of a rate hike in October at the latest.

 

Deficient rainfall and higher food prices may push up retail inflation in the coming months, while the RBI is likely to drain systemic liquidity ahead of a likely rate hike cycle, dealers said. This will limit a further fall in OIS rates, especially with the US Federal Open Market Committee expected to increase its policy rate in 2026.

 

Traders await Bloomberg's decision on the inclusion of Indian gilts in its flagship index, with most traders betting on a favourable decision. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits. The Bloomberg announcement on the inclusion of Indian bonds is expected any time from next week to as late as September, dealers said. 

 

The movement of the rupee could also lend cues. The one-year swap rate is seen in the range of 5.70-5.95% and the five-year at 6.06-6.32%. 

 

	At 1700 IST	THURSDAY
1-year OIS	5.77%	5.81%
2-year OIS	5.92%	5.96%
5-year OIS	6.17%	6.21%
2-year MIFOR	6.76%	6.76%
5-year MIFOR	6.96%	6.97%

 

End

 

US$1 = INR 95.33

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

 

Edited by Saji George Titus

 

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