India swap rates hint Street does not expect rate cuts till Aug 2024

economictimes.indiatimes.com:

RBI) easing monetary policy by three months to August 2024, as inflation remains a concern and global central banks demonstrate few signs of much-awaited easing. Overnight indexed swap (OIS) rates, the principal tool for hedging interest rate risk in India, have climbed sharply since the RBI's last policy in June and now suggest that the central bank would only lower the repo rate in August of next year as against the earlier pricing that pointed towards policy easing at the beginning of the next fiscal year. A rise in OIS rates typically reflects market expectations of tighter financial conditions.

In the current scenario, however, the hardening swap rates do not reflect views of rates being raised but rather are a repricing of earlier optimism about rate cuts. Since the RBI's last policy statement on June 8, rates on two of the most liquid OIS contracts — the one-year and five-year swaps — have jumped 14 and 20 basis points, respectively. «Currently, OIS is suggesting no rate action till one year.

It's only somewhere around August (2024) that you get maybe one rate cut and then one more in the latter half of that fiscal year. The market doesn't have a strong view on the easing cycle and that easing cycle will be shallow,» said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership. «Near-term sentiment is also playing a role.