Rates expectations inferred from INR OIS
Sandeep Yadav
Head - Fixed Income Investment * Views are only mine & likes/reposts are not endorsements * Pls don't send LinkedIn messages as I rarely check them *
Ahead of the monetary policy we infer from the INR OIS the market expectations on rate actions in this policy as well as further in future. The OIS expectations can be divided into two starkly different categories (i) up to 1 year, and (ii) greater than 1 year.
UPTO 1 YEAR : NO RATE ACTION
The chart below compares the market OIS levels upto 1 year with the level of OIS arrived by compounding overnight MIBOR fixing at 3.70% (current levels). As can be seen, both the lines are quite close and the OIS curve does not expect any rate action for next 1 year.
GREATER THAN 1 YEAR : RATE INCREASE EXPECTED
However beyond 1 year, there are continuous rate increase expectations. The below chart shows the increase in MIBOR compared to today’s MIBOR levels at the end of each year, and the amount of increase in overnight MIBOR rates in every year. The expectation of increase in rates would be a mix of (i) liquidity tightening, and (ii) rate hikes.
