India Swaps At Lowest Since 2022 As Easing Bets Brought Forward

Investors are positioning for earlier rate cuts in India, driven by easing local inflation and concerns over economic growth.

India's one-year overnight index swap rate stood at 6.23% on Wednesday, its lowest level since August 2022. The rate has declined 28 basis points so far in 2025, now trading below the central bank's policy rate of 6.25%.

“The swap market has come to price in an April rate cut fully, with the second cut assumed to happen around October,” said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership in Mumbai. “This is a shift from earlier, when the curve was only partly pricing in an April cut, with follow-up action in December.”

The Reserve Bank of India kicked off its easing cycle with a 25-basis point reduction on Feb. 7. However, investors were uncertain over the extent of future cuts in borrowing costs, given the central bank's decision last month to refrain from shifting to an accommodative policy stance.

Minutes from the RBI's meeting released late February gave swap traders reason to wager on further cuts, as the authority's rate-setting panel flagged growth risks from maintaining a restrictive policy. More recently, expectations of further declines in inflation have driven the fall in swap rates.

Consumer price index inflation is tracking close to 4% in February, down from 4.3% a month ago, largely due to a drop in vegetable prices, Deutsche Bank economists led by Kaushik Das noted. Inflation data for February is due next week, with the RBI's target at 4%.

Additionally, signs of economic weakness in the US, accompanied by a slide in Treasury yields, have weighed on local swap rates. This has strengthened Nomura Holdings analysts' conviction in further declines.

“Conditions are ripe for a breakout move lower in INR rates,” strategist Nathan Sribalasundaram wrote in a note Tuesday.