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India IRS Review: 1-year swap jumps 65 bps as repo rate hiked 40 bps

Informist, Wednesday, May 4, 2022


By Shubham Rana


NEW DELHI – Overnight indexed swap rates surged today, as traders paid higher fixed rates after the Reserve Bank of India’s Monetary Policy Committee raised the repo rate by 40 basis points to 4.40% with immediate effect. The one-year swap rate rose by 65 basis points after the decision was announced by RBI Governor Shaktikanta Das today.


The one-year swap rate settled at 5.68% as against the previous close of 5.03%, while the five-year swap rate closed at 6.99% as against 6.59% on Monday.


Money markets were closed on Tuesday on account of Ramzan Eid-ul-Fitr.


The RBI’s Monetary Policy Committee held an out-of-cycle meeting on May 2 and 4, and unanimously voted to increase the repo rate by 40 bps, Das said.


As a result, the standing deposit facility is now at 4.15%, while the marginal standing facility has risen to 4.65%.


Traders also paid higher fixed rates to protect their underlying gilt holding, as bond yields surged today. The yield on the 10-year benchmark 6.54%, 2032 bond ended 26 bps higher at 7.38%, the highest closing level since May 2019, after Das announced the hike in the repo rate.


The RBI also hiked the cash reserve ratio by 50 bps to 4.5% of net demand and time liabilities. The hike, which will be effective from the midnight of May 21, will result in the withdrawal of liquidity worth 870 bln rupees.


Overnight rates may now be repriced closer to the repo rate rather than the standing deposit facility, as liquidity tightens. This is why traders paid higher fixed rates in the short-term swaps today, dealers said.


“Now, the market is expecting that the repo rate may be 5.15% by October. OIS is pricing rate hikes accordingly,” a dealer at a private bank said. “But market expectations won’t stop at 5.15%, people will start to discount a 5.50% repo rate by Mar 2023, and the OIS is reflecting that.”


Further, stop losses were triggered in swaps across maturities today, which pushed the rates higher, dealers said.


“Nobody had expected this move by the RBI. Now, the expectation is of a 25- to 50-bps hike, or somewhere in between, in the June policy,” a dealer at another private bank said. “On Thursday, when the price discovery takes place and the market stabilises, we can better asses the expectations.”



On Thursday, swap rates are seen higher after the RBI’s Monetary Policy Committee unexpectedly raised the repo rate by 40 basis points to 4.40% in an out-of-cycle policy meeting.


The hike in the cash reserve ratio is also seen pushing short-term swap rates higher, dealers said.


Traders will also look at the outcome of the US Federal Reserve’s policy meeting, due later today, where it is expected to hike rates by 50 bps and start trimming its $8.9-trln balance sheet.


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


The swap rate in the one-year segment is seen at 5.55-5.80%, and the five-year at 6.85-7.10%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR




US$1 = 76.41 rupees

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


Edited by Namrata Rao



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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