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India IRS Review: Spike on fears of aggressive rate increase by RBI

Informist, Thursday, Jul 14, 2022


By Shubham Rana


NEW DELHI – Overnight indexed swap rates rose sharply today, particularly the one-year and two-year OIS, on expectation of a more aggressive pace of policy tightening by the Reserve Bank of India in the upcoming policy reviews, dealers said.


The one-year overnight indexed swap rate settled at 6.35%, against 6.20% on Wednesday. The five-year swap rate rose to 6.55% from 6.48% the previous day.


Traders paid higher fixed rates after US CPI print for June came in above expectations at 9.1%. After a record-high inflation reading in the US, global investors are of the view that the US Federal Reserve may hike policy rates by 100 bps at the end of July.


A 100 bps hike by the Fed may put pressure on the Monetary Policy Committee of the Reserve Bank of India to raise the policy repo rate by over 50 bps at the August policy review, dealers said.


A fall in crude oil prices during the day prevented a further rise in OIS rates, dealers said.


Brent crude oil prices fell over $2 per barrel today on fears of a potential 100 bps rate hike by the US Fed later this month.


The OIS curve has flattened this month, with the difference between the five-year OIS and the one-year OIS at 20 bps today, against 53 bps at the end of June.


“Investors around the world are seeing interest rate hikes in the next two years and then they see recession which is being reflected in the swaps,” a dealer at a private bank said.


OIS rates fell sharply on Wednesday and Tuesday as offshore traders received fixed rates after Brent crude oil prices fell below the $100-per-bbl mark.


Traders were of the view that with moderating CPI inflation and a fall in crude prices, RBI may not look to hike rates aggressively in its August meeting. However, a record-high inflation in the US has led to a change in this view, dealers said.


“US CPI has changed most views now,” a dealer at another private bank said. “People were looking at 25-50 bps hike earlier but now are looking at 75-100 bps as the RBI cannot afford to fall behind the rate hike cycle.”



On Friday, swaps may take cues from the movement in US Treasury yields and crude oil prices when the market opens.


Traders may look to pay fixed rates, particularly in the one-year and two-year OIS on view that the Reserve Bank of India may hike rates more aggressively than anticipated before.


The swap rate in the one-year segment is seen at 6.20-6.55%, and the five-year at 6.45-6.70%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR





US$1 = 79.88 rupees

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


Edited by Deepshikha Bhardwaj



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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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