Overnight swap rates hint rate cut hopes ruled out
OIS) rates, the main financial market tool for gauging the direction of monetary policy, show that derivatives markets have broadly relinquished expectations of rate cuts in 2024 as the central bank continues with its unequivocal focus on bringing inflation down to its target of 4%, which is still some distance away.
«The OIS market has moved towards pricing out all rate cuts in aggregate. There is a hope that maybe there could be nominal rate cuts towards the end of the calendar year, but it isn't really priced currently,» said Nitin Agarwal, head of trading at ANZ.
«In any case, given the current domestic growth-inflation dynamics and the situation with US economic growth, our market does not expect a deep rate cut cycle,» he said.
On Friday, the one-year OIS rate closed at 6.79% on the Clearing Corporation of India's rupee derivatives dealing segment. The OIS market typically prices in a spread of around 20-25 bps over where traders expect the repo rate to be at different time periods. Therefore, the prevailing one-year OIS level indicates that the market does not expect a reduction in the benchmark policy rate, currently at 6.50%.
In early February, the one-year OIS was almost 20 basis points lower, with pricing of different swap contracts reflecting expectations of at least one rate cut of 25 bps in August or October.
Governor Shaktikanta Das said on Friday that while inflation has moderated over the past couple of months and is within the central bank's tolerance band of 2-6%, the aim was to bring the
