Informist, Thursday, Feb 22, 2024
By Nishat Anjum
MUMBAI – Overnight indexed swap rates ended little changed as traders refrained from placing aggressive bets ahead of the minutes of the Reserve Bank of India’s Monetary Policy Committee February meeting, scheduled to be released at 1700 IST. Some traders paid fixed rates in the five-year swap, tracking a rise in US Treasury yields, dealers said.
The one-year swap rate settled at 6.72%, as against 6.71% on Wednesday. The five-year swap rate ended at 6.34%, against 6.33% on the previous trading day. The movement in the short-term swap rates was limited, as it has been over the past week, as there have been no fresh cues on the trajectory of domestic interest rates, dealers said.
“Our rate cuts will follow the Fed (US Federal Reserve). So, moving the market now doesn’t make sense,” a dealer at a private bank said. “My conjecture is that we (RBI) will cut 2-3 months after the Fed.”
Meanwhile, the yield on the benchmark 10-year US Treasury note rose to 4.31%, as against 4.26% at the time of the Indian market close on Wednesday. US Treasury yields inched up after the demand at the auction for the 20-year US Treasury note was weaker than anticipated. Minutes of the recent Federal Open Market Committee meeting showed caution among policymakers about cutting rates too quickly.
“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasised the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%,” the FOMC’s minutes said. According to the CME FedWatch Tool after the minutes, only 26.3% of Fed fund futures traders expect a rate cut in May, and around 54.1% of traders now expect a 25-basis-point rate cut in mid-June.
On the domestic front, the market awaited the Monetary Policy Committee’s minutes of the February meeting, which will be released after market hours today, dealers said. In its meeting, the domestic rate-setting panel kept the repo rate unchanged at 6.50% and maintained a ‘withdrawal of accommodation’ stance.
Traders are looking ahead for comments on liquidity and stance from each of the committee’s six members. They may also take cues from the comments of external member Jayanth Verma, who voted for a 25 basis-point repo rate cut at the meeting – the first such vote since May 2020.
“This might be the only minutes with interesting views, mainly because they at least talked of rate cuts,” a dealer at a primary dealership said. “Though, I don’t expect any surprises from the minutes.”
OUTLOOK
On Friday, traders may take cues from the minutes of the February meeting of the domestic rate-setting panel, dealers said. External members Varma and Ashima Goyal’s comments on rates and policy stance would be closely watched, with Varma voting for a rate cut in February.
Meanwhile, the three RBI members’ views on liquidity management in the banking system, and their target on overnight rates, would be in focus for traders. Some sections of the market were disappointed with the lack of clarity on the central bank’s liquidity management actions at the policy review.
The market may also take cues from the US unemployment insurance weekly claims report – initial claims for the week ended Saturday, due to be released at 1900 IST. A sharp movement in US Treasury yields or crude oil prices may also lend cues at the opening.
The swap rate in the one-year segment is seen at 6.65-6.78% and in the five-year segment at 6.25-6.40%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Saji George Titus
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