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Informist, Tuesday, Oct. 6, 2026

 

By Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates ended lower Tuesday tracking an intraday fall in crude oil prices and US Treasury yields, dealers said. The reaction in domestic OIS rates was modest as traders refrained from aggressive bets before the repo rate decision of the Reserve Bank of India's Monetary Policy Committee Wednesday.

 

The one-year swap rate ended at 6.24% from 6.26% Monday, with the five-year swap rate also falling by 2 basis points to 6.67%. Total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 598.25 billion Tuesday, sharply higher than INR 386.90 billion Monday. Swap rates had inched up earlier in the day due to an overnight rise in US yields, dealers said.

 

Brent crude oil futures for December delivery fell nearly 3% intraday to a low of $97.83 per barrel and hovered near $98 at the end of Indian market hours. The 10-year US Treasury yield rose above 5.30% but eased to 5.27% by 1700 IST. However, with no major developments towards a truce between the US and Iran, the fall in OIS rates was limited, dealers said. 

 

"OIS can't react much to crude and US yields right now, the policy is right on top of the head," a dealer at a primary dealership said. "There was some reaction but the outside chance of a 50-bp increase is keeping everyone on the paid side (betting on OIS rates going higher)." 

 

Traders widely expect the MPC to raise the repo rate by 25 basis points to 5.50%, with a minority expecting a 50 bps increase to jump-start the rate hiking cycle. On the other hand, some traders also see a thin chance of the MPC holding off on a rate hike. Views on whether the committee would change its stance from the current "neutral" were also divided, with around half the market expecting the committee would signal its intent to hike rates further.

 

Traders also expect the RBI to announce measures to drain the current liquidity surplus of over INR 5 trillion as it seeks to tighten monetary policy. The announcement of further long-term variable rate reverse repo auctions would not have an impact on swap rates, but open-market sales of bonds or an incremental cash reserve ratio hike could put upward pressure on swaps maturing up to one year, dealers said. On the cusp of the rate decision, the one-month swap rate rose to factor in the higher overnight Mumbai Interbank Outright Rate fixings arising from the policy outcome.

 

Volumes also rose due to a non-banking financial company receiving fixed rates to hedge its upcoming 10-year bond issue, dealers said. Offshore traders were on the sidelines before the rate decision, they said. "Offshore has been quiet over the past week since crude and US yields are range-bound, though some desks are seeing that OIS is pricing in too many rate hikes," a dealer at a foreign bank said. "But in the mid-segment and five-year OIS, there were some flows (on the receiving side) from an NBFC (non-bank financial company)."

 

OUTLOOK

Wednesday, swap rates are likely to open steady before RBI Governor Sanjay Malhotra's statement at 1000 IST detailing the decision of the MPC, with a 25 bps rate hike factored into OIS rates, dealers said. The comments on growth, inflation, and liquidity will be used to assess the further trajectory of domestic interest rates, 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, dealers said. Inflation readings are rising, while growth indicators show resilience, strengthening the case for repo rate increases. A lack of further policy tightening will lead to a fall in swap rates, dealers said.

 

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, dealers said. Some expect more open-market sales of gilts of up to INR 1 trillion in October, while others expect a hike in banks' cash reserve ratio. 

 

Later in the day, swap rates may take cues from movements in crude oil prices and US Treasury yields and developments in the war in West Asia, dealers said. 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	MONDAY
1-year OIS	6.24%	6.26%
2-year OIS	6.41%	6.45%
5-year OIS	6.67%	6.69%
2-year MIFOR	7.81%	7.72%
5-year MIFOR	7.78%	7.72%

 

End

 

US$1 = INR 96.42

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

 

Edited by Shubhayan Bhattacharya

 

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