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India IRS Review: Up; MPC meet outcome gives no fresh cues on rates

Informist, Friday, Dec 8, 2023


By Nishat Anjum


MUMBAI – Overnight indexed swap rates ended higher as traders paid fixed rates, tracking a rise in US Treasury yields, dealers said. The outcome of the three-day meeting of the Monetary Policy Committee was largely along expected lines, failing to give fresh cues on the interest rate front.


The one-year swap rate settled at 6.86%, against 6.84% on Thursday. The five-year swap rate ended at 6.47%, compared with 6.44% the previous day.


The volume in the short-term contracts, which is usually low in comparison to the five-year contract, was robust. The one-year swap rates have not priced in rate cuts until Oct-Dec next year, while the two-year contract had priced in over 50 basis points of rate cuts over 24 months. Short-term swap rates are interest rate sensitive.


Short-term swap rates have been in a thin band even as movement in the five-year OIS rate has been a bit volatile.


The overnight Mumbai Interbank Offer Rate–the floating leg of the OIS contract–was set at 6.80% today as a liquidity deficit pushed up the cost of funds in the money market. At the end of trade on Thursday, liquidity in the banking system was in a deficit of 162.54 bln rupees, according to the Reserve Bank of India data.


“On the liquidity front, we know that in December, it is going to be tight. So, movement of the short-term swap rates will be limited this month,” a dealer at a private bank said. “And from January, if and when liquidity eases, then maybe we can talk about one-year factoring in rate cuts.” 


Meanwhile, the Monetary Policy Committee today kept the repo rate unchanged at 6.50% and retained the stance of “withdrawal of accommodation” to ensure inflation progressively aligns with the central bank’s target, while supporting growth.


The voting pattern of the committee remained unchanged, with five out of six members voting for retaining “withdrawal of accomodation”, barring external member Jayanth Verma, who expressed reservation. Meanwhile, the committee voted unanimously to keep the repo rate unchanged.


The market did not react much to the policy outcome, as the decisions were largely along the expected lines, dealers said.  


“Who would want to take positions ahead of the key data points? Also, there were no cues for the rate cuts. As of now, the only fear is all talks of higher inflation may push back cuts even more,” a dealer at a primary dealership said. “Now, there is even reversal seen in US yields.”


On the global front, the US 10-year Treasury yield rose as investors assessed the state of the labour market and broader economy ahead of employment data for November. The yield on the 10-year Treasury note rose to 4.18% during the day, as compared to as low as 4.15% at Indian market close on Thursday.


In the US, unemployment claims were marginally up at 220,000 from a revised 219,000 the prior week, government data showed Thursday. Economists had forecast new claims in the week ended Dec 2 to total 222,000.


The market is now looking ahead to the November US non-farm payroll data, due today, and the US Federal Open Market Committee meeting next week, for further insight into rate trajectory in the world’s largest economy.



Swaps are not traded on Saturdays. On Monday, swap rates are seen opening steady as traders may avoid aggressive bets due to lack of fresh interest cues, both on the domestic and global front, dealers said.


A sharp move in US Treasury yields and crude oil prices may also lend cues at the opening.


The swap rate in the one-year segment is seen at 6.78-7.00%, and in the five-year segment at 6.40-6.60%.



At 1700 IST


1-year OIS


2-year OIS


5-year OIS


2-year MIFOR


5-year MIFOR





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


Edited by Aditya Sakorkar


For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.


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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