India IRS Review:Steady as traders on sidelines ahead of MPC minutes


IRS Review:Steady as on sidelines ahead of MPC minutes

Wednesday, Oct 16


By Suyash Pande


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MUMBAI- Overnight indexed swap rates ended steady today as market participants stayed on the sidelines ahead of the minutes of Reserve Bank of India’s latest monetary policy meeting, which will be released Friday, dealers said.


The one-year OIS settled at 5.02-5.06% as against 5.01-5.05% on Tuesday, while the five-year swap ended at 5.02-5.06%, compared with its previous close of 5.01-5.05%.


The minutes of the RBI’s policy meeting held on Oct 1-4 will be released after market hours on Friday, and are expected to give insight into individual views held by members of the Monetary Policy Committee.


On Oct 4, the committee decided to lower the repo rate by 25 basis points to 5.15%. However, the rate action was seen as a conservative one, especially since the had deepened since the preceding policy review in August, when the central bank had cut interest rates by 35 bps. 


Given that the central bank acknowledged the slowdown by slashing its GDP growth forecast for 2019-20 (Apr-Mar) by 80 bps and still did not opt for a stronger policy action, market participants have been worried that the current rate cut cycle could be nearing its end.


However, with high-frequency growth indicators hinting that GDP growth in Jul-Sep may have fallen even further from a 25-quarter low of 5.0% in Apr-Jun, market participants expect the RBI to lower interest rates by 15-25 basis points in December.   


The RBI has so far cut interest rates by 135 basis points since February, marking the deepest interest rate cut cycle since 2015.


On Tuesday, the became the latest organisation to make a sharp downward revision to its growth forecast for India, lowering the projection for 2019-20 (Apr-Mar) by 90 basis points to 6.1%.


“It is a shallow market with not much happening and market is pricing in a rate cut because the GDP growth is expected to weaken further,” a dealer with a private bank said.


An overnight decline in global crude oil prices also kept OIS rates anchored, dealers said.


Crude oil for November delivery on the fell $0.78 to settle at $52.81 per barrel on Tuesday. The price of the contract fell to a low of $52.51 per barrel today.


A fall in crude oil prices has a softening effect on India’s inflation as the country is a major importer of the .


However, traders do not see much scope for a significant decline in OIS rates from their current levels, as the swap curve seems to have factored in close to 40 bps worth of additional rate cuts by the RBI.


Typically, OIS rates around 25 bps above the RBI’s repo rate, which currently stands at 5.15%.



OIS rates may open steady on Thursday as market participants may stay on sidelines before the minutes of RBI’s policy meeting due to be released on Friday. 


Any sharp movement in US Treasury yields or global crude oil prices may steer OIS rates in early trade. 


The one-year swap is seen at 4.98-5.07%, while the five-year OIS is seen at 4.98-5.08%.


  At 1700 IST Tuesday’s close
1-year OIS 5.02-5.06% 5.01-5.05%
2-year OIS 4.89-4.93% 4.88-4.92%
5-year OIS 5.01-5.05% 5.01-5.05%
1-year MIFOR
2-year MIFOR 6.05-6.20% 6.07-6.22%
5-year MIFOR 6.40-6.55% 6.38-6.53%




US$1 = 71.435 rupees


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


Edited by Arshad Hussain


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