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Informist, Tuesday, Aug. 4, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended steady Tuesday on caution ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday, dealers said. The five-year swap rate ended at its 50-day moving average of 6.36%, a level it has tested four times but not fallen below since Jul. 29. Swaps closely tracked the movement of crude oil prices intraday, easing near the end of the session on a report by Bloomberg that Qatar said a draft US-Iran deal is being shared.

 

The one-year swap rate closed at 5.87%, inching lower from 5.88% Monday. The five-year swap rate ended at 6.36%, also down from 6.37% the previous session. Brent crude oil futures for delivery in October fell to $83.54 per barrel at 1700 IST, from $84.71 at 0900 IST, though little changed from $83.66 at the end of market hours Monday. The yield on the 10-year US Treasury note was 4.69% at 1700 IST, little changed overnight. 

 

Swaps were little changed most of the day but inched along, tracking the intraday movement in crude oil prices, while traders refrained from aggressive moves one day before the monetary policy announcement, the outcome of which would dictate further positioning in swaps. A $2 fall in Brent crude prices near the end of trade led to the five-year OIS falling one basis point lower, with the 6.36% level proving to be a strong "trend line support" preventing a further fall, dealers said. Short-term swap rates edged lower, with trade volumes higher than usual as the overnight Mumbai Interbank Outright Rate fell near the RBI's Standing Deposit Facility rate to 5.09%, the lowest since Apr. 13.  

 

"If we (five-year OIS) decisively breaks 6.36% we could go (fall) all the way to 6.17-6.18% if crude supports," a dealer at a private sector bank said. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 698.55 billion, higher than INR 585.60 billion Monday.

 

OUTLOOK

On Wednesday, swap rates are seen opening largely steady before RBI Governor Sanjay Malhotra presents the monetary policy statement at 1000 IST. However, an overnight fall in Brent crude oil prices could lead to swap rates opening lower. Post-market hours Tuesday, US Treasury Secretary Scott Bessent said that a US-Iran deal to open free access to the vital Strait of Hormuz is likely Tuesday or Wednesday.  

 

Traders expect the rate-setting panel to hold the repo rate steady Wednesday, with most expecting a unanimous vote. A split in voting in favour of a rate hike could push up swap rates, dealers said. Traders expect the MPC to retain its 'neutral' stance, with some expecting a split in the voting pattern on the stance, for a shift to 'withdrawal of accommodation'. The one-year swap rate could fall around 10 basis points if the MPC keeps the repo rate and stance unchanged, dealers said.

 

However, the focus would also be on whether the RBI revises its FY27 GDP growth and CPI inflation forecasts or keeps them unchanged. Most traders expect the forecasts to be unchanged, while some expect a raise in GDP estimates and some expect a cut in CPI prints. If swap rates rise due to the RBI Governor opting for a 'hawkish' or restrictive tone in commentary, effectively setting the stage for rate hikes, some domestic and foreign banks' asset and liability managers could step in to receive fixed rates, while some fund-raisers could receive rates to hedge their bond issuances, dealers said. However, with such commentary, offshore traders could step up paying interest in swaps, dealers said. 

 

The view on the steepening or flattening of the swap rate curve will hinge on the RBI's commentary on liquidity, with some expecting the RBI to announce measures or provide commentary on draining excess surplus rupee liquidity, due to hefty inflows through foreign currency non-resident bank deposits. The foreign inflows are likely to keep the shorter-end of the swap rate curve anchored due to the liquidity boost, while some traders may receive the longer-term swaps to deploy the flows. "One can't fight the (foreign) flows. If money is coming in, then they will have to deploy it somewhere, either in OIS or bonds and even if macro is different, OIS will see receiving," a dealer at another private sector bank said.  

 

Traders expect the RBI to conduct variable-rate reverse repo operations since systemic liquidity is likely to remain ample for the next couple of weeks, but the central bank is likely to refrain from conducting measures to drain durable liquidity this month at least, they said. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.70-6.15% and the five-year at 6.15-6.50%.

 

	At 1700 IST	MONDAY
1-year OIS	5.87%	5.88%
2-year OIS	6.06%	6.07%
5-year OIS	6.36%	6.37%
2-year MIFOR	6.96%	6.95%
5-year MIFOR	7.14%	7.13%

 

End

 

US$1 = INR 95.3775

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

 

Edited by Saji George Titus

 

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