Informist, Friday, Aug 5, 2022

By Shubham Rana

NEW DELHI – Overnight indexed swap rates reversed an early fall and ended higher today after the Reserve Bank of India's Monetary Policy Committee raised the repo rate by 50 basis points, a quantum higher than 35 bps that was widely expected, said dealers.

The one-year overnight indexed swap rate settled at 6.14% as against 6.03% on Thursday. The five-year swap rate ended at 6.27% against 6.20% the previous day.

In a poll by Informist, all 30 respondents had expected the rate-setting panel to hike the repo rate, but the divide on quantum was visible. A dozen respondents expected the repo rate to be hiked exactly by 50 bps, 11 by 35 bps, two by 25 bps, and one by 40 bps. The other four respondents gave a range for the hike--two of 35-50 bps, and one each of 25-35 bps and 40-50 bps.

Traders received fixed rates early in the trade as expectations moved towards the lower band of the expected range of rate hike, dealers said.

Traders had also bet on the central bank guiding for a slower pace of rate hikes in the future, but when RBI Governor Shaktikanta Das did not give any indication of this in his speech, swap rates rose, dealers said.

"The OIS rates actually held up well even as gilts fell sharply," said a dealer with a primary dealership. "The one-year OIS went from below 6.00% to 6.15%."

Traders unwound their received positions and paid higher fixed rates after the repo rate was hiked to 5.40% and there was no comment on whether the RBI would think about stopping the rate hikes going ahead, dealers said.

OIS rates also rose after RBI Governor Das said the currently prevailing negative real interest rates were a matter of concern, and were engaging the Monetary Policy Committee's attention.

"OIS rates should not rise too much from these levels as terminal rate expectations haven't changed drastically," the dealer with the primary dealership said.

OUTLOOK

Swap rates are not traded on Saturdays. On Monday, swap rates are seen higher after the MPC raised the repo rate by a quantum higher than expected.

Any movement in US Treasury yields and crude oil prices may also lend cues when the market opens.

The swap rate in the one-year segment is seen at 5.90-6.25%, and the five-year segment at 6.10-6.35%.

End

US$1 = 79.23 rupees

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

Edited by Ashish Shirke

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