India IRS Review: Rates steady as mkt eyes Jul-Sep GDP data on Fri
Tuesday, Nov 26
By Vaibhav Chakraborty
NEW DELHI – Overnight indexed rates ended largely steady today as market participants refrained from placing large bets ahead of the release of GDP data for Jul-Sep on Friday, dealers said.
The one-year OIS rate closed at 5.04-5.08% against 5.02-5.06% on Monday. The five-year swap rate settled at 5.06-5.10% against the previous close of 5.03-5.07%.
The GDP data that will be released on Friday is likely to indicate that the slowdown in the economy has intensified in Jul-Sep.
Market participants expect GDP growth to fall below a 25-qaurter low of 5.0% in Apr-Jun, dealers said. According to a Cogencis poll of 27 economists, GDP growth in Jul-Sep is expected to fall to 4.6%.
At current levels, swap rates have already priced in a sharp slowdown in growth, and a consequent reduction in the Reserve Bank of India’s policy rates, the dealers said.
“Although today there were some unwinding of received positions but the rates ended largely steady as market does not have any fresh triggers on the domestic front till the GDP data is out. Moreover, the market seems to have factored in rate cut by the RBI in December but the current rates seem to be well in line with the expectation of rate cut,” a dealer with a large private bank said.
While the Reserve Bank of India is widely expected to lower interest rates by another 25 basis points at its policy review next week, OIS rates have factored in close to rate cuts of 40 basis points. Typically, OIS rates are around 25 bps above the RBI’s repo rate, which currently stands at 5.15%.
With the RBI having already cut interest rates by a cumulative 135 bps since February, traders are waiting for the upcoming GDP data and the RBI’s policy statement to gauge the extent of further policy easing.
While some market players see the central bank at the fag-end of its rate cut cycle, others were of the view that the severity of the current economic slowdown warranted a significant reduction in policy rates.
“The general view from here is that rate cut is definitely on the cards; what remains to be seen is the guidance of the RBI based on what sort of surprise GDP data springs up. Other key thing for the market is whether the RBI is likely to follow a wait and watch like other central banks or will it continue easing policy rates till growth doesn’t pick up,” a dealer with a private bank said.
On Wednesday, OIS rates may open steady as participants may remain on the sidelines ahead of the release of Jul-Sep GDP data on Friday.
While expectation of the RBI cutting rates at its monetary policy meeting in December may keep OIS rates anchored, swaps may not fall by much as the market has already factored in substantial rate cuts.
Any sharp movement in US Treasury yields or crude oil prices may steer swap rates in early trade.
The one-year OIS is seen in a band of 5.00-5.08%, while the five-year swap is seen at 5.01-5.10%.
|At 1700 IST||Monday’s close|
US$1 = 71.4825 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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This copy was first published on the Cogencis WorkStation
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