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Informist, Monday, Aug. 24, 2026

 

By Janwee Prajapati and Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates ended largely steady in thin trade Monday as traders await clarity on the US-Iran war front after US Treasury Secretary Scott Bessent threatened economic sanctions against Iran, dealers said. However, the rise in US Treasury yields and Brent crude oil price pushed swap rates higher, dealers said. Some traders likely received fixed rates as the levels seemed attractive, which contained the rise in swap rates, dealers said.

 

The one-year swap rate closed at 5.92% Monday, against 5.90% Friday. The five-year swap rate settled at 6.45%, against 6.42% the previous day. Some traders said the one-year OIS rate is pricing in over 75 basis points of repo rate hikes, with the first rate hike likely at the Reserve Bank of India's policy meeting in October. Others, however, expect the Reserve Bank of India's monetary policy decision on the rate hike to be dependent on GDP and inflation data. Traders also await the release of India's GDP data for the first quarter, scheduled for Aug. 31, dealers said.

 

The benchmark 10-year US Treasury yield was at 4.71%, up from 4.68% at the end of Indian trading hours Friday. The Brent crude oil October futures contract was at $93.21 per barrel at 1700 IST, slightly lower than $93.38 per barrel at the end of Indian gilt market hours Friday. Brent crude oil price rose over $93 per barrel as a major escalation of the war is likely after the US warned that it would announce economic sanctions on Iran, which are likely to hit Tehran's economy and force its surrender, according to media reports.

 

"We (swap rates) are almost flat and trade volume is very low today (Monday)," a dealer at a primary dealership said. "US yield is up, but I think it is crude (Brent crude oil prices) that traders are more concerned about. People (traders) are waiting for clarity on the US economic sanctions on Iran."

 

Trading volumes remained modest as traders did not change their views on domestic interest rates based on the offshore triggers though the high crude oil prices kept up the pressure, dealers said. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform rose slightly to INR 448.30 billion from INR 421.10 trillion Friday.

 

Most traders do not expect the Monetary Policy Committee to hike rates aggressively as the minutes noted limited signs of demand overheating and leading to inflationary pressures. This capped the rise in the one-year OIS rate in early trade as the pricing neared 100 bps of rate increases in the next 12 months, dealers said. Moreover, with inflation seen within the RBI's 2-6% target band over the next year, according to the RBI's projections, traders currently do not expect the policy repo rate to rise beyond 6.00% from 5.25% now. 

 

"It is difficult to justify pricing above 100 bps for now (in the one-year swap rate), the RBI does not seem keen," a dealer at a private-sector bank said. "The day-to-day movement depends on crude and since we were generally in the same range, there was not much volume." The five-year swap rate also had a technical resistance around 6.48%, the dealer said.

 

OUTLOOK

Tuesday, swap rates are expected take cues from US Treasury yields and crude oil prices as traders await further developments in West Asia, dealers said. US President Donald Trump's statement declaring tighter sanctions on Iran than ever before are seen pushing the two sides further apart, which may keep US yields and crude prices high, they said. 

 

India's swap rates are pricing in over 75 bps of repo rate increase over the next 12 months starting 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 RBI's Monetary Policy Committee, they said.

 

Global cues and rising domestic inflation may prompt the committee to raise interest rates at its coming meeting in October. Rainfall continues to remain in a deficit and may push up food inflation in the coming months, dealers said. 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. Tuesday, 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	FRIDAY
1-year OIS	5.92%	5.90%
2-year OIS	6.14%	6.13%
5-year OIS	6.45%	6.42%
2-year MIFOR	6.95%	6.90%
5-year MIFOR	7.10%	7.06%

 

End

 

US$1 = INR 95.74

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

 

Edited by Rajeev Pai

 

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