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India IRS Review:Up; MPC minutes to be scanned for normalisation cues

Informist, Friday, Oct 22, 2021


By Aaryan Khanna


NEW DELHI – Overnight indexed swap rates surged as traders paid heavy fixed rates on caution that officials could hint at moves towards normalisation of ultra-accommodative monetary policy in the minutes of the Reserve Bank of India’s October policy meet.

The Monetary Policy Committee’s minutes for its Oct 6-8 meet were released at 1700 IST today.


The one-year rate ended at 4.22% against 4.15% on Thursday, while the five-year swap rate ended at 5.61% against the previous close of 5.57%.


Traders awaited policymakers’ views on inflation and growth, and the stand taken by each member on a timeline for rolling back of accommodation in both liquidity and rates.


Dealers paid fixed rates on the possibility that the MPC could hint towards a quicker-than-expected normalisation glide-path, which had started to be priced in OIS rates over the past month.


“There was heavy paying up to two years because the comments could be really hawkish, and this is the last view, really, into the thinking of the MPC before the expected US taper in November,” a dealer at a primary dealership said.

“At least from the positioning, people were expecting something on reverse repo definitely, and maybe even something beyond on the repo rate,” the dealer said. 


Further, both the one-year and five-year swap rates gained due to an accompanying rise in gilt yields after the result of the weekly gilt auction. Traders trimmed their holdings of gilts while paying heavy swap rates to protect their portfolios from any surprise in the minutes, dealers said.


Moreover, the five-year swap rate rose, after trading in a thin band for most of the day, as crude prices reversed during the day’s trade. Crude prices plunged on Thursday after a US government agency forecast a mild winter, hurting the outlook for oil demand in the coming months. 


However, towards the close of market hours, the Brent crude oil futures contract for December topped the psychologically-crucial $85-per-bbl mark, leading to some overseas paying interest, dealers said.


“I feel it is a temporary thing in case the minutes add something to the normalisation conversation, because they really should. The market at least is a lot more hawkish because of crude since late September, and at least the MPC should have acknowledged that,” a dealer at a private bank said.



OIS rates are not traded Saturday.


On Monday, OIS rates may move lower as traders unwind fixed paid positions after MPC members seemed split on the pace of normalising policy in the minutes of the October policy review.


While several policymakers pointed to a build-up of inflationary pressures both globally and domestically, the comments indicated that a majority of the members remained in favour of a gradual ramp-up of policy rates that had been priced into OIS markets.


As such, the steep rise in rates today may be seen as overdone.


Later in the week, swap rates are expected to stay in a narrow range due to the recent volatility.


Dealers may avoid large bets on rates due to lack of significant cues after the MPC minutes.


Any sharp movement in US Treasury yields and crude oil prices overnight may also lend cues at the open.


The swap rate in the one-year segment is seen at 4.00-4.25%, and in the five-year at 5.45-5.70%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR



5-year MIFOR






US$1 = 74.89 rupees


Edited by Patricia Hou


Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.


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Source: Cogencis

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