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Informist, Wednesday, Jun. 17, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended steady Wednesday due to caution ahead of the US Federal Open Market Committee's interest rate decision, due later in the day, dealers said, even as a fall in near-month Brent crude oil futures below $80 per barrel lead to short-term swap rates inching lower, they said. 

 

The one-year swap rate closed at the lowest level since May 7 at 5.88% Wednesday, inching lower from 5.89% Tuesday. The five-year swap rate settled at the lowest rate since Mar. 10 at 6.30% against 6.31% Tuesday. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 546.70 billion, higher than INR 370.45 billion on Tuesday. 

 

"Traders were planning on positions for FOMC," a dealer at a private sector bank said. "This is the first FOMC post the Chair change and after the US and Iran agreed to a deal. People are already lowering their expectations of a (rate) hike (in the US) this year."

 

 

 

 

This will be the first FOMC decision under the newly-appointed US Federal Reserve Chair Kevin Warsh. Some traders expect Warsh to be "dovish" due to political pressure on the Fed to ease borrowing costs. Fed fund futures are pricing in a status quo on interest rates at the outcome, according to the CME FedWatch tool. Commentary from the new chair on inflation and employment is being keenly watched to chart US rate expectations, dealers said. 

 

As traders pare bets of a rate hike by the Reserve Bank of India's Monetary Policy Committee in August, or even in October, fears persist that the MPC will have to hike the repo rate if the US hikes rates, to protect the interest rate differential between the two countries. 

 

However, the OIS rate curve is expected to steepen further as short-term rates fall, tracking a fall in crude oil prices, dealers said. Brent crude oil futures for delivery in August were $79.24 a barrel at 1700 IST, down from $80.88 at the same time Tuesday, and fell to $77.75 per barrel intraday, the lowest since Mar. 2. Longer-term swaps are seen elevated due to concerns of El Nino and a weak monsoon pushing domestic inflation higher even if oil supply chains are restored, dealers said.

 

OUTLOOK

Swap rates are seen tracking US Treasury yields after the FOMC decision at 2330 IST Wednesday, along with commentary from new Chair Kevin Warsh. However, caution ahead of the scheduled signing of the US-Iran peace deal Friday may limit a sharp move in swaps, dealers said. If a peace deal is signed and the FOMC decision is favourable, the one-year OIS rate could fall to 5.80% while the five-year swap rate is seen falling to 6.20%, they said.

 

On the domestic front, swaps are seen falling after the RBI post market hours Wednesday removed the cap on fresh foreign currency non-resident dollar-denominated bank deposits of three- to five-year tenures, allowing banks to set higher rates, effectively boosting the tendency of these deposit schemes attracting inflows. 

 

A likely liquidity boost due to the RBI's measures to shore up capital is seen adding to the fall in short-term rates, dealers said. Most traders now do not expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The MPC may hike the repo rate in October, but a rate hike in the near-term seems unlikely with the peace deal coming to fruition and May's CPI inflation lower than expected, they said, and hence the swap rate curve could steepen. 

 

Traders will also track any development on the inclusion of Indian government bonds on Bloomberg Index Services' flagship Global Aggregate Index after the RBI and the Centre unveiled a slew of measures to improve foreign inflows earlier this month, dealers said. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. The review is expected this month, dealers said. The movement of the rupee could also lend cues. The one-year swap rate is seen at 5.75-6.00% and the five-year at 6.20-6.42%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.88%	5.89%
2-year OIS	6.04%	6.05%
5-year OIS	6.30%	6.31%
2-year MIFOR	6.67%	6.62%
5-year MIFOR	6.90%	6.84%

 

End

 

US$1 = INR 94.5250

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

 

Edited by Deepshikha Bhardwaj

 

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