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Informist, Wednesday, Sept. 9, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended higher Wednesday tracking a rise in Brent crude futures to above $100 per barrel for the first time in over six weeks, dealers said. The rise drew interest from domestic banks to receive OIS rates for the second straight day, even as inflationary fears continued to make the case for a repo rate hike by the Reserve Bank of India's Monetary Policy Committee at its next meeting in October, they said. 

 

The one-year swap rate ended at 5.99%, up from 5.95% Tuesday. The five-year swap rate ended at 6.48%, up from 6.43% Tuesday. The one-year rate hit a high of 6.00% intraday and the five-year rate climbed to 6.50?fore easing slightly. Total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform rose to INR 515.70 billion from INR 384.35 billion Tuesday.

 

Brent crude for November delivery rose to $100.73 per barrel at 1700 IST, the highest since Jul. 24, from $98.62 per barrel at the end of Indian market hours Tuesday. Oil prices rose significantly after Iran launched fresh attacks on US military assets in West Asia, with the war escalating over the last week. Hopes of a quick fall in oil prices have declined as the war continues and countries like China return to buying crude in global markets amid the disruption of supply for over six months through the vital Strait of Hormuz, dealers said.

 

"It was the expected reaction to crude that OIS would rise, there was consistent paying through the day," a dealer at a private-sector bank said. "But I feel there are some flow or factors that we are unable to understand that is keeping the rates below 6.50% (on the five-year swap rate)."

 

 

Corporate hedging activity to receive fixed rates in order to hedge their fixed rate bond coupons declined Wednesday while offshore paying activity increased, dealers said. However, the low overnight Mumbai Interbank Outright Rate fixing had the effect of keeping paying pressures from domestic participants in check, they said. The floating leg of the OIS contract has been set at 4.91-5.04% over the past five sessions, well below the policy repo rate of 5.25%.

 

"Until the RBI does something to push up (overnight) rates, I don't think it will be easy to break these levels (on OIS)," a dealer at another private-sector bank said.

 

Traders await retail inflation data for August in the US and India before placing any large bets on the trajectory of domestic interest rates. The one-year swap rates was already pricing in 100 basis points of rate hikes in the next year, starting in October, which is seen as the most aggressive that the MPC is likely to go unless CPI inflation sharply beats forecasts, dealers said. With the MPC warning rate hikes may be necessary to cool inflation, traders are constantly reassessing the size and timing of tighter monetary policy, they said. 

 

OUTLOOK

On Thursday, swaps are expected to track overnight movements in crude oil and US Treasury yields, as well as any fresh developments in the US-Iran war, dealers said. Traders also look for indications of liquidity-draining measures from the RBI, with foreign exchange dealers saying Wednesday the central bank conducted dollar-rupee sell-buy swaps in the secondary market to absorb liquidity.

 

The market's focus is on the release of India's CPI inflation data for August on Monday. India's retail inflation is likely to rise to a 20-month high of 4.8% in August from 4.45% in July, according to the median estimate of an Informist Poll of economists. Rising inflation above the RBI's 4% target may put pressure on the central bank to tighten monetary policy and on its MPC to raise the repo rate.

 

Before that, traders await the release of US CPI data for August on Friday ahead of the US Federal Open Market Committee's meeting mid-month. Dealers expect that if the Fed opts for a rate hike in September, the RBI's rate-setting panel will follow suit in October, dealers said.

 

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits thin out closer to the end of the deadline Friday to swap dollars under this scheme, swap rates may no longer be capped, dealers said. However, bets that the swap rate curve will flatten will take time to play out as long as there is such a large surplus of liquidity in the banking system, they said. 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	TUESDAY
1-year OIS	5.99%	5.95%
2-year OIS	6.19%	6.14%
5-year OIS	6.48%	6.43%
2-year MIFOR	7.33%	7.20%
5-year MIFOR	7.43%	7.31%

 

End

 

US$1 = INR 95.1050

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

 

Edited by Deepshikha Bhardwaj

 

 

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