Informist, Wednesday, Apr 27, 2022
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates rose in the latter part of trade after reports indicated that Monetary Policy Committee external member Jayanth R. Varma may push for the rate-setting panel to hike rates in a brisk manner, dealers said.
The one-year swap rate settled at 4.98% against the previous close of 4.94%, and the five-year swap rate closed at 6.51% against 6.48% on Tuesday.
India needs to act to sharply trim its CPI inflation level, which has remained elevated for too long, Varma said in an interview to NewsRise.
Moreover, the rate-setting panel may not need to warn the market before taking action to curb runaway inflation, which had stayed at 5.5% for too long instead of the Reserve Bank of India’s target of 4%, Varma said.
The comments were in sharp contrast to guidance by Reserve Bank of India Governor Shaktikanta Das in previous policies, where he indicated that the central bank and the policy committee would telegraph rate hikes, dealers said.
Traders paid fix rates in both the one- and five-year OIS rates, the most-traded contracts today, after the comments, dealers said.
“OIS rates have more of a risk built in, being a pure interest rate product, to Varma’s comments which means that at least one member is looking to hike rates immediately even during the accommodative policy,” a dealer at a primary dealership said.
For much of the day, trade was dull as swap rates traded in a narrow band amid mixed global cues, with a fall in US Treasury yields offsetting an overnight rise in crude oil prices.
Brent crude settled higher in volatile trading on Tuesday with the market weighing concerns over Russian supply and declining Chinese demand.
Prices were also supported after the People’s Bank of China said it will step up monetary policy support to the real economy amid fears of a slowdown in the world’s second-largest economy.
The Brent crude oil futures for June delivery settled over 2.5% higher at $104.99 per bbl on Tuesday, and rose further to $105.76 a bbl in Asian trade today.
On the other hand, US Treasury yields settled lower on Tuesday as uncertainties surrounding the war in Ukraine and China’s COVID-19 outbreak kept investors wary of the hit to economic growth.
The yield on the 10-year benchmark US Treasury note fell 7 basis points to 2.74% on Tuesday.
“It was a lacklustre day as trades are range-bound around these levels, we have been trading here for a while and I think this range should hold until fresh triggers from the US Federal Reserve next week,” a dealer at a private bank said.
OUTLOOK
On Thursday, swap rates are seen steady as traders may keep to the sidelines due to lack of major domestic cues on interest rates.
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 4.85-5.10% and the five-year at 6.40-6.65%.
End
US$1 = 76.53 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Vandana Hingorani
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Source: Cogencis
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