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Informist, Tuesday, Sept. 1, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates inched higher Tuesday, tracking a rise in crude oil prices intraday and an overnight rise in US Treasury yields. However, the rise was limited by banks hedging inflows received through foreign currency non-resident (banks) deposits, dealers said. The one-year swap rate ended at 6.02%, from 6.00% Monday. The five-year swap rate ended at 6.51%, from 6.48% at the previous close. The five-year swap rate had hit a low of 6.47% and a high of 6.54% during the day. 

 

"Market is trying to figure out because the FCNR timeline (to raise deposits) has ended but we expect the after-effects to stay for another week and of course global cues (are to be tracked)," a trader at a primary dealership said.

 

Some dealers said the 6.52% level on the five-year OIS rate was a technical level deterring a sustained rise above it, unless Brent crude oil prices or US Treasury yields rise further. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 375.95 billion, down from INR 505.55 billion Monday. Flows to hedge FCNR(B) deposits were lower than Monday, dealers said, contributing to low volumes. However, with fears of Brent crude oil prices remaining at $90 per barrel and the subsequent rise in expectations of rate hikes, swaps are seen rising, dealers said. "I think a correction in rates is due once the FCNR flows end, market has priced in that flows could be above $85 billion and we know that the receiving is preventing OIS from moving upwards for now," a dealer at a private-sector bank said. 

 

Elevated global bond yields pushed up swap rates, dealers said, with focus also on the US Federal Open Market Committee's meeting later this month, with some traders bracing for a rate hike in the US. However, flush liquidity in the banking system limited a rise in short-term swaps, though traders said attention was more on the interest rate trajectory, since systemic liquidity is likely to reduce by next month due to outflows and possible measures by the Reserve Bank of India to drain durable liquidity, dealers said. 

 

OUTLOOK

On Wednesday, 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, traders will watch the RBI's management of surplus liquidity in the banking system, dealers said.

 

Liquidity is expected to continue 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 or a Market Stabilisation Scheme, 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, some dealers said. Others said ensuring that the weighted average call money rate is near the repo rate need not signify the movement of interest rates.

 

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 Wednesday in the range of 5.85-6.10% and the five-year at 6.40-6.65%.

 

	At 1700 IST	MONDAY
1-year OIS	6.02%	6.00%
2-year OIS	6.21%	6.19%
5-year OIS	6.51%	6.48%
2-year MIFOR	7.08%	7.01%
5-year MIFOR	7.20%	7.14%

 

End

 

US$1 = INR 94.9500

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

 

Edited by Rajeev Pai

 

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