Five-year interest-rate swaps jumped 63 basis points in February, reflecting growing expectations of a tighter monetary policy
The global economic recovery is fueling speculation central banks will soon be shifting into tightening mode -- nowhere more so than India.
Five-year interest-rate swaps jumped 63 basis points in February, the biggest advance since the 2013 taper tantrum, reflecting growing expectations of a tighter monetary policy. Swap rates signal India will see the most rapid tightening of any nation in Asia, according to Standard Chartered Plc. Fears of a resurgence in inflation driven by rising oil prices is adding to the speculation.
“The market is swept up by high-intensity global reflation trade,” said Suyash Choudhary, head of fixed income at IDFC Asset Management Ltd. in Mumbai. “Within this, India’s sensitivity to crude oil prices as well as the V-shaped rebound in economic activity may be creating divergent expectations of the monetary policy path ahead.”
Rate-hike wagers are building around the world as optimism over an economic rebound is complicated by concern that inflation is quickening following an unprecedented period of rock-bottom borrowing costs. In India’s case, this is posing a thorny challenge for central bank Governor Shaktikanta Das, who has vowed to keep monetary policy accommodative as long as necessary to support the recovery.
Indian swaps are pricing in an increase of about a percentage point in rates over the next calendar year, compared with a quarter-to-half a percentage point earlier this year, according to ICICI Securities Primary Dealership Ltd.
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