Overnight Indexed Swap rates surge as investors brace for RBI rate hike: Report

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RBI) upcoming rate hike, said Reuters in its report. "The short-end of the OIS curve is completely factoring in one more rate hike over the next few months while talks of rate cuts have died down for now," said Vijay Sharma, senior executive vice president at PNB Gilts, according to Reuters report. The five-year swap rate increased to 6.75% on Thursday, surpassing a level last recorded on February 27.

India's one-year swap rate hit 7.03% on Thursday, its highest level since March 9. Swaps have increased by more than 20 basis points so far in August as a result of the benchmark US yield reaching a 10-month high and rate cut bets being pushed back by an increase in local inflation. Retail inflation in India increased sharply in July, jumping from 4.87% to 7.44%, the highest level since April 2022 and breaking the upper limit of the RBI's inflation band for the first time in five months.

Also Read: India's retail inflation surges to 7.4% in July on high vegetable prices; food CPI highest since October 2020 Many bond market traders believe yields may be close to their short-term top and do not anticipate any rate movement. "Bond markets are unwinding premature rate cut expectations due to high inflation readings in US and Indian markets. While a hike in rates is inconceivable at this time, rates are going to remain elevated and liquidity is going to get tighter," said Sandeep Bagla, CEO at Trust Mutual Fund, according to Reuters report.