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Informist, Thursday, Sept. 10, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended higher for the second day, tracking crude oil prices, with Brent futures for Novemeber delivery topping $102 per barrel by the end of the session, dealers said. Near-term swap rates rose less than the five-year contract because of the low overnight Mumbai Interbank Outright Rate fixing, they said.

 

The one-year swap rate ended at 6.00%, up from 5.99% Wednesday. Meanwhile, the five-year swap rate ended at 6.52%, against 6.48% Wednesday. Total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell slightly to INR 496.40 billion from INR 515.70 billion Wednesday.

 

Crude oil prices continued to climb on fear of supply disruptions as the war in West Asia expanded between US and Iranian allies, with attacks on oil tankers, oil production facilities and military infrastructure reported Wednesday. Near-month Brent futures rose to their highest in seven weeks, which is likely to increase inflationary pressures in India, which imports over 85% of its crude oil requirements, dealers said.

 

The sustained rise in oil prices over the last two weeks and dwindling hope of a quick end to the war have made the chances of an October rate hike by the Reserve Bank of India's Monetary Policy Committee more likely, they said. However, swap contracts in two years and longer rose more than the one-year swap rate as offshore traders were active in those tenures, dealers said. 

 

"Offshore is more sensitive to crude oil, they are still fixed on the narrative that inflation in India blows up if oil goes above $100 (per barrel)," a dealer at a foreign bank said. "The one-year (OIS rate) is pricing in an October rate hike already and a 6.50% terminal rate when overnight fixings are at 5.00%. So, there is limited juice there until the overnight rates rise." 

 

The overnight MIBOR rate has been set between 4.91% and 5.04% since Sept. 3, when surplus liquidity in the banking system topped INR 10 trillion. It was at the higher end of that range Thursday but well below the policy repo rate of 5.25%. Traders were making daily losses on their paid fixed rate positions as the RBI had not taken measures to sterilise durable liquidity emanating from the foreign currency non-resident (banks) deposits under its special scheme, dealers said. 

 

However, the RBI is likely to take more steps to prop up overnight funding rates and drain liquidity in the coming days, dealers said. Foreign exchange dealers said the central bank has conducted dollar-rupee sell-buy swaps over the past two days, a measure that reduces rupee liquidity in the banking system.

 

Consistent receiving by domestic banks and non-banking financial companies also kept a check on rates, dealers said. NBFCs were receiving three-, five-, and 10 years OIS rates to hedge recent or upcoming bond issuances, which have increased as investors are looking to deploy the surplus of cash in hand to the systemic liquidity surplus, dealers said.

 

"NBFCs are the latest entrants who are receiving. There is no momentum that is building up on the paying side," a dealer at a private sector bank said. "Ideally, the RBI should be draining liquidity for three to six months and prepare the market for a rate hike, after which we can see some actual rise in OIS."

 

OUTLOOK

On Friday, swaps are expected to track overnight movements in crude oil and US Treasury yields, as well as any fresh developments in the US-Iran war, dealers said. The 10-year US Treasury yield rose to 4.92% at 2025 IST after data showed producer prices rose 5.4% on year, slightly higher than a Dow Jones poll estimate. Brent crude for November delivery topped $105 per barrel after Indian market hours. 

 

Traders are looking for indications of liquidity-draining measures from the RBI, with foreign exchange dealers saying Wednesday the central bank conducted dollar-rupee sell-buy swaps in the secondary market to absorb liquidity. Traders await the release of US CPI data for August on Friday ahead of the US Federal Open Market Committee's meeting mid-month. Dealers expect that if the Fed opts for a rate hike in September, the RBI's rate-setting panel will follow suit in October, dealers said.

 

Dealers also await the release of India's CPI inflation data for August on Monday. Retail inflation in India is likely to rise to a 20-month high of 4.8% in August from 4.45% in July, according to the median estimate in an Informist poll of economists. Inflation rising above the RBI's 4% target may put pressure on the central bank to tighten monetary policy and on its MPC to raise the repo rate.

 

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 may no longer be capped, dealers said. However, bets that the swap rate curve will flatten will take time to play out as long as there is such a large surplus of liquidity in the banking system, they said. 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	WEDNESDAY
1-year OIS	6.00%	5.99%
2-year OIS	6.21%	6.19%
5-year OIS	6.52%	6.48%
2-year MIFOR	7.42%	7.33%
5-year MIFOR	7.52%	7.43%

 

End

 

US$1 = INR 95.44

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

 

Edited by Avishek Dutta

 

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