India OIS rate hits 6.11%, suggesting at least three rate hikes over next year
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims·
Monetary policy and inflation management: a key GS3 topic regarding interest rate signals.
Why in news
The one-year overnight index swap (OIS) rate in India rose to 6.11%, signaling potential interest rate hikes by the RBI to combat inflation and rising oil prices.
Background
The one-year OIS rate reached 6.11% on Tuesday, the highest since early June. Market analysis suggests a likely rate hike in October, with a 90% probability of a Fed hike on Wednesday.
Facts for Prelims
- FactOne-year overnight index swap (OIS) rate in India: 6.11% as of September 2026
- FactMarket probability of a Fed hike: over 90%
- FactProjected rate hikes: At least three 25-bps hikes over the next year
Prelims practice question
With reference to the Overnight Index Swap (OIS) rate in India, consider the following statements:
- The market suggests a projected rate hike of 50-bps over the next year.
- The market probability of a Fed hike is currently over 90%.
- The one-year OIS rate reached 6.11% as of September 2026.
Which of the statements given above is/are correct?
- (a)2 only
- (b)3 only
- (c)2 and 3 only
- (d)1, 2 and 3
Show answer
Answer: (c) 2 and 3 only — Statements 2 and 3 are correct. Statement 1 is incorrect: The note projects at least three 25-bps hikes.
For Mains
Q. Discuss the role of Overnight Index Swaps (OIS) as a tool for gauging monetary policy expectations and their significance in managing inflation and exchange rate volatility.
Dimensions to cover in your answer
- Monetary transmission: Impact of OIS-driven expectations on commercial lending rates and liquidity
- External pressure: Correlation between Fed interest rate decisions and domestic inflation-targeting measures
- Inflationary drivers: Impact of global oil price volatility on the RBI's repo rate trajectory
Keywords: Monetary Policy · Overnight Index Swap · Inflation Targeting · Repo Rate · Liquidity Management
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