India IRS Review: Fall as Nov CPI comes in lower than estimates

Informist, Tuesday, Dec 13, 2022

By Shubham Rana

MUMBAI – Overnight indexed swap rates fell today as lower-than-expected headline inflation print of 5.88% prompted traders to receive fixed rates, dealers said.  

The 1-year swap rate settled at 6.63% compared with 6.67% on Monday, while the 5-year swap rate ended at 6.23%, against the previous day’s close of 6.25%. The market has shifted to 0900-1700 IST since Monday.

India’s headline retail inflation fell to an 11-month low, primarily on account of a decline in prices of food items and a favourable base effect. The print was lower than 6.4%, the estimate of an Informist poll. This is the first time in 11 months that CPI inflation has come under the upper band of the Reserve Bank of India’s 2-6% comfort range. 

With the latest inflation reading, traders now firmly expect the RBI’s Monetary Policy Committee to hike the repo rate by just 25 basis points in February, against the 35 bps hike earlier this month.

“While inflation has come below 6%, core still remains sticky, which is why market still expects a 25 bps hike and not a pause,” a dealer at a private bank said. “Because core inflation is a concern, only offshore traders received rates and not the domestic traders today.”

Volume was muted today as traders kept to the sidelines ahead of the US CPI data release and the outcome of the US Federal Open Market Committee meeting, dealers said.

US CPI data is scheduled to be released later today, and a Reuters poll sees a 7.3% rise in headline inflation in November, against a rise of 7.7% in October.

The FOMC will detail its meeting outcome on Thursday, where it is seen hiking rates by 50 bps, against the previous four hikes of 75 bps each.

The fall in swap rates was limited because of a rise in crude oil prices, dealers said. Crude oil prices settled higher on Monday as the Keystone pipeline between the US and Canada remained closed, threatening to tighten supply to the largest consumer of crude in the world.

The Brent crude contract for February delivery ended at $77.99 per barrel on Monday, against $76.10 a bbl on Friday. Brent prices rose to $79.60 per bbl today.

OUTLOOK

On Wednesday, swap rates are seen taking cues from the US CPI data for November, dealers said.

Traders may keep to the sidelines ahead of the US FOMC rate decision on Thursday.

Traders may watch out for any sharp movement in US Treasury yields and crude oil prices at open.

The swap rate in the one-year segment is seen at 6.55-6.70%, and the five-year at 6.20-6.35%.

At 1530 IST

Monday

1-year OIS

6.63%6.67%

2-year OIS

6.32%6.36%

5-year OIS

6.23%6.25%

2-year MIFOR

6.44-6.56%6.40-6.52%

5-year MIFOR

6.62-6.74%6.60-6.72%

End

US$1 = 82.81 rupees

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

Edited by Aditya Sakorkar

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Source: Cogencis