Informist, Monday, Dec 13, 2021

By Vaibhav Chakraborty

NEW DELHI – Overnight indexed swap rates ended on a mixed note today. The five-year swap rate inched higher as some traders paid fixed interest rates on caution ahead of the CPI inflation print for November, due later today, dealers said.

India's headline retail inflation rate is seen rising to a three-month high of 5.1% in November from 4.48% in October, according to 23 economists polled by Informist.

Even as the inflation is seen below the upper threshold of the Reserve Bank of India's comfort range of 2-6%, traders placed bet on the view that higher vegetable prices may push the inflation higher than the market's expectations, dealers said. 

Moreover, the favourable base effect that had helped drag down inflation to 4.35% in September has also waned and will turn unfavourable from December.

"We saw some bit of paying before inflation data as they would have hedged in case the inflation steers closer to 5.5% or above, I feel that it would be close to the consensus (5.0-5.2%) dependent on the increase in vegetable prices," a dealer with a private bank said. 

The one-year swap rate ended at 4.28%, flat against the previous close, while the five-year swap rate ended at 5.38% compared with 5.35% on Friday.

Meanwhile, the shorter-tenure swap rates were largely unchanged from the previous day's close as traders refrained from placing large bets ahead of crucial monetary policy meetings of key central banks, which could set the stage for an exit from the ultra-low interest rates regime, dealers said.

"The market was pretty muted today, people were unwilling to place fresh bets as there are several key policies lined up which can potentially define the global view on interest rates heading into 2022," a dealer with a primary dealership said.

With several countries around the world faced with record-high inflation, the US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan, among others, are scheduled to hold their policy meetings this week.

The primary focus of the central banks is likely to tame inflation, which threatens to derail the nascent economic recovery. The authorities may mull unwinding their ultra-accommodative policy at an accelerated pace, dealers said. 

The Fed is expected to accelerate its asset purchase tapering, thereby, setting the stage for an earlier-than-expected liftoff of interest rates, as the CPI inflation in the country hovers around a four-decade high, dealers said.

Data released on Friday showed that the US CPI inflation for November touched a near four-decade high, as it climbed to 6.8% on year.

OUTLOOK

Swap rates may take cues on from the CPI inflation print for November due at 1730 IST today.

A higher-than-expected inflation may prompt traders to pay fixed interest rates particularly in the three to five year segment.

Meanwhile, traders may exercise caution on Tuesday ahead of crucial monetary policy meets of key central banks.

Any sharp movement in US Treasury yields and crude oil prices might lend cues at open.

The swap rate in the one-year segment is seen at 4.10-4.35% and that in the five-year at 5.20-5.45%.

End

US$1 = 75.77 rupees

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

Edited by Pranav S. Joshi

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