m the spot market and tightening some hedging rules. At the same time, the RBI is tightening banks’ day-to-day cash requirements from October 16th, which effectively locks up more money and keeps short-term funding conditions firm.
This matters because “plumbing” changes hit short-term rates first. Overnight indexed swaps (OIS) reflect expectations for where overnight borrowing costs will sit over time, so the front end can reprice quickly when liquidity is being tightened: Friday’s levels were about 6.24% for one-year swaps and 6.44% for two-year swaps (and 6.7250% for five-year). With inflation still a question mark – and oil prices high – bond traders may find it harder to extend the rally until the next inflation read clarifies the path.
Why should I care?
For markets: A steady 10-year yield can still come with sticky swap rates.
The RBI’s ₹250 billion sale and tougher daily reserve-maintenance rules are designed to drain liquidity, not just signal policy intent. With less surplus cash, banks typically pay up first for overnight money, and that pressure tends to show up in the shortest maturities of OIS. So even if the 6.94% 2036 yield stays capped near 7.26%-7.32%, swap levels like 6.24% (1-year) and 6.44% (2-year) may have less room to fall, keeping rupee-rate hedging costs and floating-rate borrowing benchmarks firmer than the bond-market headline suggests.