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Informist, Monday, Sept. 7, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates recovered from a fall earlier in the session to end steady Monday, tracking the intraday movement of Brent crude oil prices, which had dipped earlier on reports that Iran had said a deal with Oman over the Strait of Hormuz was just days away but rose again by the end of swap market hours. Surplus liquidity in the banking system also aided the receiving bias in swaps, though some traders chose to pay fixed-rate contracts as expectations of rate hikes in India persist. Volumes were low as received flows from large banks' asset and liability desks thinned out, dealers said.

The one-year swap rate ended at 5.98% from 5.99% at Friday's close. The five-year swap rate ended at 6.46%, from 6.47% Friday. The spread between the two swaps widened slightly to 49 basis points, from 48 bps Friday--which was the lowest in over a month. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell further to INR 277.45 billion, from INR 281.90 billion Friday. The Brent crude oil contract for delivery in November was $97.45 per barrel at 1700 IST, up from $96.82 per barrel at 0900 IST and $95.13 per barrel at 1700 IST Friday, but it fell briefly to $95.97 per barrel intraday.

Systemic liquidity in the banking system hit a record high of over INR 11 trillion Sunday, the most since the RBI started releasing the data in January 2019. "Some people are expecting that till the next MPC (Monetary Policy Committee meeting, in October) we will have 10 to 15 lakh crore (INR 10 trillion to INR 15 trillion) surplus liquidity in the system, so people are quoting 5.23%, 5.24% also on the one-month OIS and T-bill rates have fallen," a dealer at a state-owned bank said. The one-month OIS--which matures on Oct. 8--ended at 5.24%, below the Reserve Bank of India's repo rate of 5.25%. The RBI's Monetary Policy Committee's October decision is due Oct. 7, the same day as the reversal of the central bank's 30-day variable rate reverse repo auction conducted Monday. The auction was poorly subscribed, but the announcement of the auction was a relief to several traders as they had expected the central bank to announce measures to drain durable liquidity in the banking system. Some traders however, expect the Monetary Policy Committee to hike the repo rate in October.

"For those who do not expect a hike in October, these are lucrative levels to receive," a dealer at a private-sector bank said. "I'm not seeing the five-year OIS rise above 6.55% for now, maybe (maximum till) 6.60%." The five-year OIS has tested the 6.55% level about three times since the Monetary Policy Committee's meeting in June, but has retraced its rise after reaching this level.

OUTLOOK

Tuesday, swaps are seen tracking the overnight movement of crude oil and US Treasury yields, along with any fresh developments in the US-Iran war. Traders will also track the systemic liquidity in the banking system and look for indications of liquidity-draining measures from the RBI. Closer focus is on the US Federal Open Market Committee's meeting mid-month, with expectations that if the Fed opts for a rate hike in September, the RBI's rate-setting panel will follow suit in October, dealers said. Before that, attention will also be on India's CPI inflation data for August, which is seen between 4.9% and 5.1%, rising further above the central bank's 4% target.

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits thin out closer to the end of the deadline Friday to swap dollars under this scheme, swap rates are likely to correct and be on an uptrend, dealers said. However, bets of the swap rate curve flattening will take time to play out as long as there is such a large surplus liquidity in the banking system. The one-year swap rate is seen in the range of 5.82-6.10% and the five-year at 6.35-6.65%.

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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