Informist, Friday, Oct 13, 2023

By Nishat Anjum

MUMBAI – Overnight indexed swap rates fell on persistent receiving of fixed rates by offshore traders, dealers said. Some domestic offshore traders also unwound paid bets after lower-than-expected domestic retail inflation data for September.

The one-year swap rate settled at 6.95%, against 6.98% at close on Thursday. The five-year swap rate ended at 6.66%, against 6.70% the previous day.

"Honestly, it looks like, as compared to economies in the West, we are better placed on a fundamental level," a dealer at a primary dealership said. "Most negatives are already factored into rates now."

Offshore traders unwound their paid bets as their outlook on India's economy changed, dealers said. As inflation dips towards the Reserve Bank of India's 4% target, foreign investors might see it as a sign of rates peaking.

India's CPI combined inflation rate for September was at 5.02%, against the expectation of 5.4% in an Informist poll. The RBI had projected inflation at 5.0%, but estimates in the poll were in the range of 5.2-6.2%.

In addition, traders are now keen to receive swap rates and place short bets on their underlying bond holdings on the view that gilts may not gain as much on positive news owing to the overhang of potential open market operation sales by the central bank, dealers said.

On Oct 6, RBI Governor Shaktikanta Das had said that the central bank might have to consider such operations to drain liquidity and would do so through the auction route when required.

"Most action has been driven by offshore traders this week. From the looks of swap rates, one-year is now back to seeing repo rate around 6.50%, which earlier had factored in 6.75%," a dealer at a primary dealership said.

OUTLOOK

Swaps are not traded on Saturdays.

On Monday, swap rates may open steady as traders may avoid aggressive bets owing to a lack of firm domestic interest rate cues, dealers said.

Traders will also watch out for any sharp movement in crude oil prices at the opening.

The swap rate in the one-year segment is seen at 6.90-7.10% and in the five-year segment at 6.60-6.80%.

End

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

Edited by Rajeev Pai

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