Mumbai: Indian rate swaps eased on Wednesday, after the US Federal Reserve cut interest rates by 50 basis points, prompting expectations that the Reserve Bank of India (RBI) could follow suit in the coming months.
At 1:25 p.m., the five-year overnight indexed swap was at 7.08/7.105% -- off an early low of 7.03% and down from the previous close of 7.14/7.16%.
The Fed lowered its benchmark federal funds target rate by 50 basis points to 4.75% to shore up the world’s largest economy. It also cut the discount rate it charges for direct loans to banks by a half-point to 5.25%.
“Swaps opened sharply lower after the FOMC announcement. But, it’s perked up a bit now, as high oil prices create uncertainty about inflation,” a private bank trader, said.
Oil traded near record levels. The higher prices could see the federal government raise state-set retail fuel prices. That could lift the inflation rate, which had dropped to a two-year low at the start of September.
The Indian central bank raised its main lending rate five times between June 2006 and March this year.