India’s five-year swap rate off high on easing US inflation; India CPI data key

The five-year swap rate was at 6.20%, down 14 basis points from a high of 6.34% hit on Monday, while the one-year swap rate was trading at 6.11%, easing from Monday’s high of 6.19%.

India’s five-year swap rate off high on easing US inflation; India CPI data key

India’s five-year overnight indexed swap (OIS) rate was sharply off its recent high on Thursday, as softer-than-expected U.S. inflation data raised bets that the Federal Reserve may not be very aggressive in terms of interest rate hikes.

The five-year swap rate was at 6.20%, down 14 basis points from a high of 6.34% hit on Monday, while the one-year swap rate was trading at 6.11%, easing from Monday’s high of 6.19%.

“There is receiving interest from foreign banks in swaps, especially in the longer part of the curve, as Fed rate-hike bets have come down, and traders are anticipating a similar move locally,” a trader with a private bank said.

Also read| US inflation falls more than expected in July to 8.5% as petrol gets cheaper, eases pressure on Fed

U.S. consumer prices rose 8.5% in July from a year earlier, down from 9.1% in the previous month and below 8.7% expected by economists in a Reuters poll. On a month-on-month basis, prices were unchanged.

The odds of a 75-basis-point rate hike at the Fed’s September meeting declined to 44% from over 70% prior to the data. The Fed had raised rates by 75 bps each at its June and July meetings.

Also read| Inflation may remain elevated, price pressures continue to build in food, fuel, and core segments

Traders in India now await local retail inflation data for July which is due on Friday. The reading is seen easing to 6.78% from 7.01% in June, according to a Reuters poll of economists.

“Any larger-than-expected fall in India’s inflation reading could see more receiving interest in five-year swaps, as traders will start cutting rate-hike expectations,” a trader with a primary dealership said.

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