More Stories

Informist, Thursday, Aug. 27, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended sharply higher Thursday due to an intraday rise in Brent crude oil futures, dealers said. Traders also feared the Reserve Bank of India would tighten monetary policy by taking durable measures to withdraw rupee liquidity in the coming weeks, they said.

The one-year swap rate rose to 5.93% from 5.86% Tuesday. The five-year swap rate ended at 6.44%, against 6.35% in the previous session. Money markets were shut Wednesday for Id-e-Milad.

With the sharp rise in rates Thursday, benchmark contracts largely returned to Monday's closing levels after a sharp fall Tuesday. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 627.75 billion from INR 724.95 billion Tuesday.

The five-year swap rate was trading below 6.40% before 1400 IST, inching up through the day after its 10-basis-point fall on Tuesday. Dealers attributed the rise past the psychologically crucial level to Brent crude futures rising to an intraday high of $88.50 per barrel Thursday from below $86.50 a barrel earlier in the session.

"The momentum in oil prices took a turn that's why there was sudden paying which pushed the rate to 6.42% (in the five-year OIS)," a dealer at a private-sector bank said. "In the morning, it was about $1 (per barrel) lower than Tuesday's close, the market had factored these prices in below $90 (per barrel) after OIS fell so much on Tuesday."

The one-year swap rate reflected nearly 100 basis points of repo rate increases from the current 5.25% over the next year, dealers said. Near-term swap rates also rose as traders were concerned the RBI may begin to push up overnight Mumbai Interbank Outright Rate fixings – the floating leg of the OIS contract – before hiking the repo rate later in the financial year. An article in Business Standard newspaper Thursday also highlighted some economists and market participants expected the central bank to drain liquidity before a repo rate increase in October or December.

The expectation for both an incremental cash reserve ratio for FCNR(B) deposits or an increase in the cash reserve ratio had long been discussed by market participants for some time, but the fear had taken centre-stage Thursday, dealers said. Moreover, the sharp fall in OIS rates on Tuesday had been caused by hefty receiving interest likely from Bajaj Finance, they said.

The non-banking financial company raised INR 50 billion via 10-year bonds and likely hedged the coupon payments by receiving fixed rates in the five- and 10-year swap rates Tuesday. With a lack of such support Thursday and offshore traders continuing to pay fixed rates, the upward pressure on swap rates continued from the opening of the session despite an overnight fall in crude oil prices, dealers said.

"It was likely mutual funds who were hitting the market so aggressively that they were driving up the rate for no reason," a dealer at a primary dealership said. "Bajaj (Finance) wanted to hedge a 10-year bond on Tuesday, that is nearly INR 100 billion of notional volumes being received in the five-year OIS alone if they wanted to do the full amount. None of that consideration was there today." 

OUTLOOK

Friday, swaps will track any signs of a peace deal between the US and Iran and the movement in crude oil prices, dealers said. US Treasury yields will also provide direction ahead of the annual Jackson Hole Economic Policy Symposium, where US Federal Reserve Chair Kevin Warsh is scheduled to speak.

Dealers also said they will watch how banks deploy the last of inflows received through foreign currency non-resident bank deposits and the trajectory of systemic liquidity once the window to raise such deposits under the scheme shuts Monday. Most traders do not expect substantial receiving from domestic asset-liability managers after next week, dealers said. 

If Brent crude oil prices fall to around $85 per barrel, traders will begin to price out imminent rate hikes in both the US and India, even though 'hawkish' commentary from US and Indian central bank officials recently has kept up rate hike bets. The movement of the rupee and overnight borrowing rates will also lend cues. Friday, the one-year swap rate is seen in the range of 5.70-6.00% and the five-year at 6.20-6.52%.

End

US$1 = INR 95.54

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

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2026. All rights reserved.