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Informist, Thursday, Oct. 1, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended higher Thursday, tracking crude oil prices and US Treasury yields, which rose intraday on reports of attacks on shipping in the Strait of Hormuz, dealers said. Some traders have also paid near-term OIS rates fearing a 50-basis-point repo rate hike Wednesday, though only a minority of the market expects such a drastic move by the Reserve Bank of India's Monetary Policy Committee to begin its rate hike cycle.

 

The one-year swap rate ended at 6.27%, up from 6.21% Wednesday. The five-year swap rate closed at 6.73% from 6.65% Wednesday. Both benchmark rates ended at their highest since May 22. Total notional trading volume on Clearing Corp. of India's derivatives trading platform was INR 480.65 billion Thursday, up from INR 342.55 billion Wednesday.

 

Brent crude oil futures rose over 3?tween 0900 IST and 1700 IST Thursday and were above $100.50 per barrel and the end of Indian market hours. The rise in oil prices likely came after news reports that three oil tankers were struck in the Strait of Hormuz. Signs of further escalation in the war in West Asia also pushed US Treasury yields higher. The US 10-year Treasury yield climbed to as high as 5.35% Thursday, its highest level since early 2002.

 

"There's no rocket science to it. In the morning things were quiet and then crude shot up and US yields went haywire and people had no choice but to pay in OIS, because you also had a bond auction happening at the same time," a dealer at a primary dealership said. The dealer was referring to the INR-330-billion weekly gilt auction.

 

Traders remained cautious ahead of the Reserve Bank of India's Monetary Policy Committee decision next week. Most market participants expect the rate-setting panel to increase the RBI repo rate by 25 basis points to 5.50% Wednesday. Traders had expected volumes to cool in short-term swap rates with 125 bps of repo rate hikes priced in already, but rising crude oil prices have led to a section of the market featuring an outsized rate hike of 50 bps. The one-year swap rate has risen to 6.27% from 6.19% at close Tuesday. 

 

Several traders said the RBI's delay in announcing further operations to drain durable liquidity was a sign it would not want to "overtighten" monetary policy. The last of the central bank's three open market operation auctions to sell gilts was on Monday. Keeping in mind the upcoming festival season, policymakers would also want to help sustain resilient growth, dealers said. Moreover, RBI deputy governor in charge of the monetary policy department, Poonam Gupta, reiterated that CPI inflation forecasts show retail inflation within the target band of 2-6% in the next few quarters.

 

"Doing 50 basis points in one go will be too much of a shock," a fund manager at a mutual fund said. "The RBI has not even officially changed its tone to reflect that it is hiking yet, so I feel it is a good level to receive once the paying momentum slows down a bit." 

 

OUTLOOK

India's financial markets are shut Friday for Gandhi Jayanti. Swaps are not traded Saturdays. On Monday, swap rates will take cues from movements in crude oil prices and US Treasury yields and developments in the war in West Asia, dealers said.

 

The next significant domestic rate trigger is the MPC's rate decision next week, they said.  As the US Federal Reserve hiked interest rates in September, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike next week, dealers said. Inflation readings are rising, while growth indicators show resilience, strengthening the case for repo rate increases. A quarter-percentage point rate hike is already factored into OIS rates and lack of further policy tightening announced Wednesday will lead to a fall in swap rates, they said.

 

For direction, traders will focus on comments by RBI Governor Sanjay Malhotra after the policy decision. Traders expect the central bank to introduce more measures to drain systemic liquidity, beyond the government bond sales it conducted this month and variable rate reverse repo operations, they said. Some expect more open-market operations sales of up to INR 1 trillion in October, while others expect a hike in banks' cash reserve ratio. The one-year swap rate is seen in the range of 5.95–6.35% and the five-year at 6.55–6.90%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	6.27%	6.21%
2-year OIS	6.48%	6.41%
5-year OIS	6.73%	6.65%
2-year MIFOR	7.73%	7.71%
5-year MIFOR	7.72%	7.70%

 

End

 

US$1 = INR 96.32

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

 

Edited by Avishek Dutta

 

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