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India IRS Review: 1-yr OIS down on view MPC to hike rates moderately

Informist, Thursday, Jun 23, 2022


By Shubham Rana

NEW DELHI – Overnight indexed swap rates ended lower today, with the one-year swap down on the view that the Reserve Bank of India’s Monetary Policy Committee will hike interest rate less aggressively than anticipated earlier, after the release of minutes of the committee’s June meeting, dealers said.


The one-year swap rate ended at 6.32%, against the previous close of 6.36%, while the five-year swap rate closed at 6.93%, against 6.94% on Wednesday.


“The OIS market is still pricing in terminal rate very high, but after the minutes, people are now looking to unwind their paid positions as the interest rate hikes will probably be less aggressive,” a dealer at a private bank said. 


The minutes showed RBI Deputy Governor Michael Patra saying the endeavour of the committee should be to bring down inflation into the tolerance band by Jan-Mar or Apr-Jun, and progressively align it to the target during the course of 2023-24.


Ashima Goyal, an external member of the rate-setting panel, said the one-year-ahead real rate must not be more negative than -1%, which would be achieved by a 50-60 bps rate hike.


The five-year OIS fell sharply in early trade as offshore traders unwound their paid fixed positions, after crude oil prices slumped on fears of a supply glut and weakening demand due to aggressive monetary policy interventions.


The Brent crude contract for August delivery traded under the key $110-a-bbl mark today.


The fall in the five-year swap rate was also due to the view that pressures on CPI inflation would ease, dealers said. 


“I am against the view that inflation would fall in the near term,” a dealer at another private bank said. “The effect of crude prices on inflation will be visible after only a few months and at that point, the RBI will be looking majorly on CPI for rate hike cues.”

A fall in US Treasury yields also weighed on OIS rates today, dealers said. However, comments by Federal Reserve Chairman Jerome Powell on recession led to traders paying higher fixed rates during the day, dealers said.


The yield on the 10-year benchmark US Treasury note ended sharply lower on Wednesday at 3.16%, because of growing fears that the US Federal Reserve would cause a recession by aggressively tightening monetary policy to tame elevated inflation.


Powell told congressional lawmakers on Wednesday that the US central bank was not trying to engineer a recession, but was fully committed to bringing prices under control even at the risk of an economic downturn.


“At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” the Fed chief said in remarks for the Senate Banking Committee. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”


The comments come in the backdrop of the US central bank hiking rates last week by 75 basis points, the biggest increase since 1994, and signalling at the possibility of a similar move in July.


In recent weeks, investors have been increasingly worried that aggressive monetary tightening would tip the US economy into a recession.



On Thursday, swaps are seen taking cues from any sharp movement in crude oil prices and US Treasury yields when the market opens.


Traders will also look at the movement in gilt yields during the day ahead of the outcome of the 330-bln-rupee weekly gilt auction to take cues for hedging.


The swap rate in the one-year segment is seen at 6.20-6.55%, and the five-year at 6.85-7.20%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR




US$1 = 78.30 rupees

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


Edited by Avishek Dutta


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Cogencis news is now Informist news. 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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