India Rate Swaps Decline to Two-Week Low on Ample Cash Supply

  • Central bank managing liquidity situation well: FirstRand
  • Drop in call rate signals improved availability of funds

India’s one-year interest-rate swaps dropped to a two-week low amid optimism cash supply in the financial system remains adequate.

The overnight call-money rate, a gauge of interbank funding availability, has averaged 6.64 percent so far in October, down from 7.01 percent for all of September, data compiled by Bloomberg show. Commercial banks have passed on about 70 of the 125-basis point reduction in benchmark borrowing costs by the central bank this year, with more than half of it coming after Governor Raghuram Rajan on Sept. 29 cut the repurchase rate by a larger-than-estimated 50 basis points.

“The liquidity in the banking system is good,” said Harish Agarwal, a Mumbai-based fixed-income trader at the local unit of South African lender FirstRand Ltd. “The Reserve Bank of India has been managing the cash situation very well.”

The premium to lock in borrowing costs for one year fell two basis points to 7.02 percent in Mumbai, the least since Oct. 5, data compiled by Bloomberg show. The yield on the sovereign notes due May 2025 rose one basis point to 7.57 percent, according to prices from the RBI’s trading system.

India’s rupee was little changed from Friday at 64.8050 a dollar, prices from local banks compiled by Bloomberg show.

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