Informist, Wednesday, Jun 1, 2022

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended steady today as traders avoided aggressive bets. Key economic data released on Tuesday provided little cues to the direction the Monetary Policy Committee will take at the upcoming meeting next week, dealers said.

The one-year swap rate ended at 6.20% against the previous close of 6.19%, while the five-year swap rate closed at 7.00% compared with 6.98% on Tuesday.

For the full year ended March, the Indian economy grew 8.7%, marginally lower than the earlier estimated 8.9%, the National Statistical Office said.

Also, the central government's fiscal deficit was 6.7% of GDP in the year ended March, lower than the revised Budget estimate of 6.9%, data released by the Controller General of Accounts on Tuesday showed.

Neither figure is likely to deter the Monetary Policy Committee from hiking the repo rate by 50 basis points to 4.90% at the outcome of its meeting on Jun 8, dealers said.

"I think the RBI has moved past looking at growth for cues on policy, in my mind a 50 basis point hike is set in stone next week, and the OIS market has already priced that in fully," a dealer at a primary dealership said.

The one-year swap rate ended off-highs, with traders paying up to 6.25% in the one-year contract in the middle of the day after the RBI set higher-than-expected cutoffs at the Treasury bill auction today, particularly in the 364-day segment.

The RBI set the 364-day T-bill cutoff yield at 6.0801%, against 5.9100% set at last week's auction. An Informist poll of 17 bond dealers had estimated the cutoff yield on the 364-day T-bill at 5.96%.

However, at the elevated level, traders unwound their fixed rate positions and booked profits on the view that the terminal repo rate and policy path would be far less aggressive than charted by the swap rate curve, dealers said.

"We are seeing the one-year inch up, but I don't think there is actually any scope for further payment here above 6.20%. Bear in mind, this is with both US Treasury yields and crude completely adverse," a dealer at a private bank said.

OUTLOOK

On Thursday, swap rates are seen steady due to a lack of fresh triggers for interest rates ahead of the Monetary Policy Committee meeting next week.

Any sharp movement in crude oil prices and US Treasury yields might lend cues when the market opens.

The swap rate in the one-year segment is seen at 6.00-6.30%, and the five-year at 6.85-7.10%.

End

US$1 = 77.52 rupees

Edited by Arshad Hussain

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