Mumbai: India’s overnight indexed swap (OIS) rates extended their fall on Tuesday as continued worries on the global economy kept investors away from riskier assets.
At 11:21 am, the one-year rate was at 7.57%, down 4 basis points from Monday’s close, after touching 7.54%, its lowest since 11 August.
The finance minister’s dovish comments reduced the probability of rate by the Reserve Bank of India (RBI) on 16 September, when it will review its policy.
The Business Standard newspaper on Monday quoted finance minister Pranab Mukherjee as saying the RBI may not increase its key lending rate further as it will impact growth. The market has been broadly expecting another 25 basis points rate rise by the RBI to tame high inflation.
“The rate scenario is seen easing unless there is a surprise on the inflation front or oil,” a trader with a private bank said. “Possibly it will be a dovish policy this time,” he said.
The benchmark five-year overnight indexed swap rate was steady at 6.82%, after falling to 6.76%, a level last seen on 23 August.
The euro fell to a six-month low versus the Japanese yen and seven-week low against the dollar on Tuesday on rising concerns that the euro zone’s debt crisis may be spiraling out of control.
Indian shares fell 0.5% on Tuesday, tracking Asian peers that fell on fears that Europe’s sovereign debt troubles are worsening and could trigger a second full-blown banking crisis.
The 10-year benchmark 7.80%, 2021 bond yield was up 1 basis point at 8.29%.
Traders said concerns over high inflation remained with the possibility of further stimulus measures by the United States (US), which is likely to push up commodity prices.
Brent crude was steady at above $110 a barrel on Tuesday, as the market weighed expectations for further economic stimulus in the US against a worsening euro zone debt crisis.
India’s food price index rose 10.05%, its highest in nearly six months, and the fuel price index climbed 12.55% in the year to 20 August.
Volumes were at Rs 2325 crore, according to Clearing Corporation of India (CCIL).