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Informist, Thursday, Sept. 3, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended lower Thursday after data released by the Reserve Bank of India after market hours Wednesday showed inflows through the central bank's concessional window for foreign currency non-resident (banks) deposits were much larger than expectations, dealers said. Due to the inflows, surplus liquidity jumped to its highest since at least January 2019, aiding the fall in swap rates, they said. Some foreign and private-sector banks deployed inflows received through these deposits into swaps, they said. While the euphoria of the higher-than-expected flows led to a fall in swaps, intraday moves in crude oil prices and expectations of measures to drain durable liquidity limited the fall, dealers said.

 

The one-year swap rate ended at 6.00%, unchanged from Wednesday's close. The five-year swap rate ended at 6.49%, from 6.53% Wednesday. The one-year OIS rate ended off the day's low of 5.96% while the five-year OIS rate ended off the day's low of 6.46%. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform surged to INR 998.50 billion from INR 597.00 billion Wednesday. The Brent crude oil contract for delivery in November was at $96.74 per barrel at 1700 IST, up from $94.03 per barrel earlier in the session and $94.33 per barrel at 1700 IST Wednesday. The RBI's net liquidity absorption, a proxy for the banking system liquidity surplus, rose to INR 9.70 trillion Wednesday from INR 7.76 trillion Tuesday, according to latest data. This was the highest since the RBI started maintaining data on the metric in January 2019.

 

"There are just flows being deployed again, and the sheer number of FCNR flows is also there," a dealer at a private-sector bank said. "But now that the money has come, everyone is asking what the RBI will do with it." Traders expect systemic liquidity to top INR 12 trillion by the end of the week. Data released by the RBI after market hours Wednesday showed that FCNR(B) inflows under the central bank's scheme had reached $127.23 billion, beating expectations of about $100 billion. The overnight Mumbai Interbank Outright Rate Thursday was set at 5.01%, near the RBI's Standing Deposit Facility rate and the lowest since Aug. 4, 2022. Tracking the fall, the one-month OIS rate fell 4 basis points to end at the RBI's repo rate of 5.25%, the lowest since Aug. 20. The swap was little changed Wednesday even as the overnight MIBOR fell 15 bps that day.

 

With nearly three rate hikes being priced in the one-year OIS rate, traders are betting on the swap rate curve flattening, but the timeline of such a move is yet to be ascertained, with FCNR(B) flows disrupting these bets till at least the swap window shuts on Sept. 11, dealers said. "There is no high conviction for outright trades, the flatteners are simply just not playing out," a dealer at a corporate house said.

 

OUTLOOK

On Friday, swap rates are seen opening lower as systemic liquidity is likely to rise further, with expectations of systemic liquidity hitting INR 12 trillion by end of the week, dealers said. Dealers expect the RBI to Friday announce measures to drain durable liquidity in the banking system, with most traders expecting incremental hikes in the cash reserve ratio to take it to 4%, from the current 3%, which is historically low. Traders will also assess the outcome of banks' meetings with the central bank over measures to deal with surplus liquidity in the system, and discussions held on the Centre's borrowing plan for Oct-Mar.

 

Raising the CRR to 4% over time would lock up about INR 2.75 trillion of systemic liquidity, dealers said. Outflows for advance tax and goods and services tax this month will drain about INR 5 trillion. By the RBI's next policy meeting in October, core systemic liquidity could top INR 10 trillion, they said. An increase of 100 basis points in the CRR would set the stage for a repo rate hike at the policy meeting to follow, some dealers said. 

 

The RBI could announce a combination of measures Friday, or in a phased manner, including sale of government bonds through open market operations, a dollar-rupee sell-buy swap, or a market stabilisation scheme. Some traders also expect measures such as a long-term variable rate reverse repo auction with the option of premature redemption. 

 

Traders will also track the movement in crude oil prices and US Treasury yields, along with any fresh developments in the US-Iran war. The one-year swap rate is seen in the range of 5.82-6.10% and the five-year at 6.35-6.65%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	6.00%	6.00%
2-year OIS	6.19%	6.22%
5-year OIS	6.49%	6.53%
2-year MIFOR	7.13%	7.13%
5-year MIFOR	7.25%	7.24%

 

End

 

US$1 = INR 94.4850

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

 

Edited by Rajeev Pai

 

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