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Informist, Friday, Aug. 21, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower Friday, with the fall coming in the final few minutes of the session, after Iran President Masoud Pezeshkian was quoted by media reports as saying that it was better to end the West Asia war from a position of strength, dealers said. Through the day, swap rates were largely steady due to a lack of fresh cues on interest rates before the weekend.

 

The one-year swap rate closed at 5.90% Friday, against 5.94% Thursday. The five-year swap rate settled at 6.42%, down from 6.48% the previous day. Despite the fall on Friday, the one-year swap rate is up 17 basis points this week and is pricing in over 75 bps of repo rate hikes over the next 12 months. The five-year OIS rate also rose by the same amount.

 

At an event, Pezeshkian was quoted as saying that it was better to end the war now as Iran was in a position of power and dignity and that the whole world acknowledged its victory while painting the US as the aggressor. Brent crude for October fell by nearly $1 after the statement to $93.33 per barrel at the end of Indian market hours.

 

"Initially, the market didn't move on his comments which were flashed at 1648 IST since there are so many factions in Iran and the president is not always the right mouthpiece," a dealer at a foreign bank said. "But after four-five minutes when people starting reacting, it became a sudden flood of trades in one direction." 

 

A quick end to the war in West Asia and normalisation of oil supplies through the Strait of Hormuz are expected to ease pressure on the Reserve Bank of India's Monetary Policy Committee to hike the repo rate. The rise in Brent crude futures to nearly $95 per barrel this week, the highest in nearly a month, have stoked concerns about imported inflation in the coming months, dealers said. High wholesale price inflation – nearly 10% on year in both June and July – would also translate to retail prices. The central bank has forecast CPI inflation to average 5.9% in the December quarter and 5.35% in the 12 months to June 2027.

 

OIS rates are still pricing in repo rate hikes of 75-100 bps  by the MPC after statements by the six members of the committee in the minutes showed concern about the inflation trajectory. Minutes of the August policy meeting released Wednesday showed Deputy Governor Poonam Gupta said "a case for a hike may emerge during the course of the year". External member Saugata Bhattacharya warned of the pass-through of high fuel prices to the rest of the economy, though all members noted that signs of demand-driven inflation were modest as of latest data. 

 

Notwithstanding the late movement, traders noted lack of significant activity from both onshore and offshore traders Friday as they lacked fresh triggers. As expected, some traders were receiving fixed rates to take profits before the weekend after the sharp rise in OIS rates this week, dealers said. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform halved to INR 421.10 billion from INR 846.90 trillion Thursday.

 

"Most of the market was following crude up and down for their positioning in OIS," a dealer at a private sector bank said. "There was no big player or size in the market before the news (of the Iranian president's statement) came."

 

OUTLOOK

OIS rates are not traded on Saturdays. On Monday, swap rates are expected take cues from US Treasury yields and crude oil prices. Developments in peace talks between the US and Iran will be key after Iran President Pezeshkian's statement favouring a quick end to the war, dealers said. However, Brent crude futures for October once again topped $94 per barrel by 1810 IST, up 1% from the low hit after the remarks.

 

India's swap rates are pricing in over 75 bps of repo rate increase over the next 12 months starting in October. This is an extreme interpretation and not a widespread base case among traders, who largely expect an increase of 50-75 bps, dealers said. However, with inflation risks tilted to the upside, offshore traders may also pay fixed rates if the market does not price in at least 75 bps of rate hikes by the MPC, they said.

 

High crude oil prices remain a concern for traders as they may prompt the RBI's Monetary Policy Committee to raise interest rates. The movement of the rupee and overnight borrowing rates will also lend cues. With the central bank's special foreign currency non-resident (banks) deposit scheme now ending Aug. 31 rather than Sept. 30, dealers do not expect onshore entities to heavily receive fixed rates even when they rise, with increased focus on overseas triggers.

 

On Monday, the one-year swap rate is seen in the range of 5.70-6.00% and the five-year at 6.30-6.52%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.90%	5.94%
2-year OIS	6.13%	6.17%
5-year OIS	6.42%	6.48%
2-year MIFOR	6.90%	6.90%
5-year MIFOR	7.06%	7.07%

 

End

 

US$1 = INR 95.70

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

 

Edited by Avishek Dutta

 

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