OIS), the principal financial market gauge for gauging which way interest rates are headed, show that traders have reduced the extent of rate cuts they expect from the Reserve Bank of India (RBI) this year, following a vigilant tone on inflation and liquidity by the central bank.
A slower-than-expected inflation decline in the US and sobering Federal Reserve commentary on when its much-awaited policy easing may start has also prompted Indian traders to reduce their bets on how much rates the RBI will cut this year.
«August would still be on the table for a rate cut but earlier the OIS curve was clearly suggesting a 50 basis point (bps) cut in August,» said Vikas Goel, MD and CEO, PNB Gilts. «Now it reflects hesitation — it looks like it is more inclined towards 25 bps, liquidity has also become tight again.» A basis point is 0.01 percentage point.
On Wednesday, the one-year OIS rate was last at 6.74%, while the five-year OIS rate was at 6.37%, Clearing Corporation of India data showed. On February 2, a day after the presentation of the budget, the one-year and five-year OIS rates were at 6.60% and 6.14%, respectively.
«OIS suggests that rate cuts could still start in August or October, but now the pricing suggests one-and-a-half cuts,» said Naveen Singh, head of trading at ICICI Securities Primary Dealership. «Earlier, the expectation was that rate cuts could start in June and the curve had priced in around three rate cuts one year down the line.»
In its policy statement on February 8, the RBI emphasised that