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Informist, Monday, Aug. 31, 2026

--India's 1-year OIS ends at 6.00%, highest closing level since Jul 23 

--India's 5-year OIS ends at 6.48%, highest closing level since Jul 24 

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended higher Monday, tracking a rise in crude oil prices after renewed conflict between the US and Iran, dealers said. Pricing of rate hike expectations increased after US Federal Reserve Chair Kevin Warsh opted for a 'hawkish' address at the annual Jackson Hole Symposium over the weekend, they said. However, some traders received fixed rates, with technical levels also deterring a further rise, and swap rates retreated from the day's highs. Swaps were little changed after the release of India's GDP growth data for Apr-Jun, despite the print coming in higher than expected.  

The one-year swap rate ended at 6.00%, the highest close since Jul. 23, up from 5.95% Friday. The five-year swap rate ended at 6.48%, from 6.44% at its previous close, ending at its highest since Jul. 24. Both swaps ended off the day's high of 6.03% and 6.52%, respectively. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 505.55 billion, similar to INR 535.20 billion Friday. Brent crude oil futures for delivery in November rose to about $91 per barrel by the end of swap market hours Monday, rising from $89.61 per barrel at 1700 IST Friday, after the US and Iran exchanged strikes in the Gulf region for the first time in about a month. The yield on the benchmark 10-year US Treasury note retraced its rise to 4.75%, which was last seen on Aug. 18, tracking the rise in crude prices and after Warsh said Friday that the Fed still had work to do to bring inflation under control.

According to the CME FedWatch tool, Fed fund futures are pricing in a 64% chance of a 25-basis-point rate hike by the US Federal Open Market Committee at its upcoming September meeting, from 41% a week ago. Traders expect the Reserve Bank of India's Monetary Policy Committee to follow suit if the FOMC hikes rates in September, after which the MPC could hike the repo rate at its October meeting. "One-year OIS is pricing more than 2 hikes (by the RBI) but less than 3," a dealer at a state-owned bank said. "So it's looking like an uptrend (in swap rates) for me." Traders have been bracing for an upward move in swaps due to a 'hawkish' Fed, the RBI's sudden closure of its dollar-rupee swap window for foreign currency non-resident (bank) deposits, and the re-escalation in the US-Iran war, dealers said. 

After several global triggers pushed up swap rates earlier in the session, they were little changed after data released at 1600 IST showed India's economy notched a GDP growth of 7.8% in the June quarter, higher than an Informist Poll estimate of 7.2%. "We (dealers) were having this conversation the last few days, that GDP could be 7.8% also," a dealer at a private-sector bank said. "And look at your nominal GDP, people were expecting 13%." India's nominal GDP growth was 10.3% in the June quarter, from 8.1% a year ago. 

OUTLOOK

On Tuesday, swap rates will track crude oil prices and US Treasury yields, along with fresh developments in the US-Iran war, dealers said. On the domestic front, close watch will be on the Reserve Bank of India's management of surplus liquidity in the banking system, with liquidity hitting its highest since April, at about INR 5 trillion over the weekend, due to the Centre's month-end expenditure and hefty inflows through FCNR(B) deposits, dealers said.

Liquidity is expected to rise this week as banks swap the remaining FCNR(B) inflows under the special facility, while expectations that the RBI will introduce measures to drain durable liquidity, including incremental hikes in the cash reserve ratio, are gaining traction, dealers said. Such a hike in the CRR would set the stage for a repo rate hike at the next policy meeting, dealers said. The one-year swap rate continues to reflect around 100 basis points of repo rate hikes over the next 12 months, dealers said. The one-year swap rate is seen in the range of 5.85-6.10% and the five-year at 6.30-6.56%.

End

US$1 = INR 95.1625

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

Edited by Saji George Titus

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