Traders in India’s derivative market anticipate a hike in the foreign investment limit for overnight index swaps (OIS) during the central bank’s monetary policy review on Thursday. As of August 6, foreign investors had used 96% of the existing ₹3.5 billion ($41.70 million) limit.
“Various representations have been made to the RBI because utilisation has remained high for a long time,” said a Treasury head of a foreign bank. During talks with the RBI, bank treasury executives have urged hiking the ceiling to ₹4.5 billion or deleting it entirely, despite no clear industry approach. The RBI did not respond to Reuters’ requests for comment.
Investors use OIS markets to reduce risk by reflecting interest rate expectations. Foreign investors have limits on the price value of a basis point (PVBP) of their positions, excluding those used to hedge rate risks. The swap market has risen since JPMorgan announced the inclusion of Indian bonds in its emerging market debt index in September.
Previously, 18% of the limit remained unutilised, but the cap is now nearly depleted, potentially driving activity offshore if not expanded.
