India IRS Review
Inch lower on FCNR(B) flows; overnight MIBOR at 4-year low
This story was originally published at 22:02 IST on 4 September 2026
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By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates ended slightly lower Friday, with an intraday fall in crude oil prices aiding the receiving by banks deploying their foreign currency non-resident (banks) deposits in swaps, dealers said. The overnight Mumbai Interbank Outright Rate Friday fell to its lowest since Aug. 4, 2022, at 4.91% amid flush liquidity in the banking system. However, volumes fell on caution ahead of US non-farm payrolls data for August, due after market hours, and expectations of the Reserve Bank of India announcing measures to drain durable liquidity, dealers said. The RBI was expected to announce the measures after market hours.
The one-year swap rate ended at 5.99% from 6.00% at Thursday's close. The swap has risen 4 basis points on week. The five-year swap rate ended at 6.47%, from 6.49% Thursday, rising 3 bps on week. The spread between the two swaps was compressed to 48 bps, the lowest in over a month. "Finally the flatteners are playing out today (Friday)," a dealer at a corporation said. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform slumped to INR 281.90 billion, from INR 998.50 billion Thursday. The Brent crude oil contract for delivery in November was at $95.13 per barrel at 1700 IST, inching lower from $95.89 per barrel at 0900 IST and $96.74 per barrel at 1700 IST Thursday.
"Market is just waiting for the steps RBI will take for (draining) liquidity, and there is nervousness before NFP (non-farm payrolls) also," a trader at a primary dealership said. "Someone is getting FCNR (flows) and deploying it, but this is not a sustainable fall in OIS."
Some traders paid fixed rate contracts on bets that the central bank will announce after market hours permanent measures to drain surplus liquidity in the banking system. Albeit, trade was lacklustre as traders awaited the announcement, with swaps closely tracking the intraday movement of crude oil prices, dealers said. "Nothing has happened today (Friday), it's a very boring day," a dealer at a state-owned bank said. "I was expecting some issuers to come to receive but they haven't either."
Traders also await CPI inflation for August to assess movement of the repo rate, with expectations of a print of 4.9-5.1%, higher than July's print of 4.45%. The one-month OIS rate traded at the RBI's repo rate 5.25%, not reflecting any repo rate hike at the Monetary Policy Committee's October meeting.
OUTLOOK
Swaps are not traded Saturdays. Monday, they are seen falling after the RBI refrained from conducting permanent measures to drain systemic liquidity and instead chose to conduct a 30-day variable rate reverse repo operation Monday with the option of premature redemption.
Systemic liquidity is seen hitting INR 12 trillion by the end of this week, which is likely to support the fall in swaps, dealers said. Dealers had expected the RBI to Friday announce measures such as incremental hikes in the cash reserve ratio to drain durable liquidity in the banking system.
Traders will also track the movement in crude oil prices and US Treasury yields, along with any fresh developments in the US-Iran war. US yields rose after swap market hours after US non-farm payrolls last month were sharply higher than expected, at 162,000 against 53,000 estimated in a Dow Jones poll.
The one-year swap rate is seen in the range of 5.82-6.10% and the five-year at 6.35-6.65%.
| At 1700 IST | THURSDAY | |
| 1-year OIS | 5.99% | 6.00% |
| 2-year OIS | 6.18% | 6.19% |
| 5-year OIS | 6.47% | 6.49% |
| 2-year MIFOR | 7.23% | 7.13% |
| 5-year MIFOR | 7.33% | 7.25% |
End
US$1 = INR 94.4850
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Rajeev Pai
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