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Informist, Wednesday, Aug. 12, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended lower Wednesday as domestic banks received fixed rate contracts to deploy inflows received through foreign currency non-resident (bank) deposits, dealers said. Moreover, several traders were of the view that CPI inflation in the US in July would be lower than expected, leading to some pricing out rate hikes by the US Federal Open Market Committee in September, dealers said. Swap rates were little changed after India's headline inflation last month was in line with estimates. 

 

The one-year swap rate closed at 5.77%, down from 5.79% Tuesday. The five-year swap rate settled at 6.27%, down from 6.29% in the previous session. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 237.90 billion, sharply lower than INR 607.50 billion Tuesday.

 

"Ours (India) CPI is a non-event, but US (US CPI) could be lower (than expected)," a dealer at a state-owned bank said. "Market has already priced in rate hikes by the Fed (US FOMC) so UST (US yields) could move lower." India's CPI inflation for July was 4.45%, the highest in 19 months on the back of a 5.52% on-year rise in food inflation, data released at 1600 IST showed. However, core inflation — which traders have increased focus on after Reserve Bank of India governor emphasised on the metric last week — fell to 3.9% from 4.1% in June.

 

Swaps opened higher, tracking an overnight rise in Brent crude oil prices and US Treasury yields, but moved lower later in the day due to receiving by banks. Some mutual funds have also been receiving fixed-rate contracts in swaps this week, dealers said. Some traders chose to receive fixed rates in swap and sell short-term bonds, which has also contributed to the five-year benchmark 6.36%, 2031 bond's underperformance this week, they said. The spread between the two instruments has widened to about 10 bps this week from an inverted spread three weeks ago. 

"Flows (from FCNR) will definitely come in, but basically everyone is expecting US CPI to pull down (US) September rate (hike) pricing," a dealer at a mutual fund said. 

 

OUTLOOK

On Thursday, swap rates will track the overnight movement of crude oil prices and US Treasury yields, dealers said. US yields were little changed after CPI inflation data from the US showed headline inflation in the world's largest economy rose to 3.4% on year, in line with estimates, from 3.5% the previous month. Bets of a rate hike by the Fed in September reduced, with Fed fund futures pricing in 38% chance of a 25 bps rate hike next month from 48?ay ago, according to the CME FedWatch tool. 

 

Some banks are still seen receiving fixed rates due to inflows through foreign currency non-resident (banks) deposits, dealers said. However, swap rates are seen sticky with little direction barring global triggers. Offshore traders have been largely absent from swaps this week, with a slight receiving bias. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.65-6.10% and the five-year at 6.12-6.40%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.77%	5.79%
2-year OIS	5.96%	5.99%
5-year OIS	6.27%	6.29%
2-year MIFOR	6.83%	6.86%
5-year MIFOR	7.01%	7.04%

 

End

 

US$1 = INR 95.33

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

 

Edited by Avishek Dutta

 

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