Indian rate swaps ease on RBI intervention hopes

Indian rate swaps ease on RBI intervention hopes


Mumbai: Indian overnight indexed swaps eased on Thursday, 20 September, as traders expected aggressive central bank intervention in the currency market would raise cash levels in the banking system. At 1:30pm, the five-year overnight indexed swap was at 7.05-7.07%, a tad lower than 7.07-7.09% at the previous close.

The Indian rupee strengthened past 40 per dollar on Thursday, for the first time in more than nine years, after lower US rates brightened the outlook for high-yielding assets like the Indian currency.

“Expectations are strong that with a low inflation, the RBI will intervene to curb the rupee’s rise," a foreign bank trader said.

The Reserve Bank of India (RBI) bought $11.4 billion in intervention in July, taking its dollar purchases in the first seven months of this year to $38.1 billion. The central bank infuses cash into the system, when it buys dollars.

Excess cash in the money market stokes price pressures and analysts expect that a soft inflation would provide the central bank more leeway to intervene in the currency market.

India’s wholesale price inflation rate is forecast to ease to 3.27% for the 12 months to 8 September, a Reuters poll showed on Thursday. This would be its lowest level since December 2002. Inflation was 3.52% a week earlier.

Cash with banks shrunk this week due to outflows of Rs350 billion (Rs35,000 crore, $8.75 billion)for tax payments by corporates.