By Dharamraj Lalit Dhutia
MUMBAI (Reuters) - India's overnight indexed swap rates jumped by at least 15 basis points after the country's central bank hiked its key policy repo rate by 50 basis points and highlighted inflation concerns.
The one-year swap rate was trading at 6.14%, up 15 bps from its previous close, while the five-year swap rate rose 16 bps to 6.32% compared with Thursday's close.
"Most market participants had shifted to expectations of a 35 bps move, but 50 bps and hawkish commentary on inflation have led to sharp paying interest across the curve," a trader with a private bank said.
On Thursday, the one-year swap dipped to its lowest in three months, while the five-year swap crashed to a four-month low.
The Reserve Bank of India (RBI) raised the key rate on Friday, the third increase in the current cycle to cool stubbornly high inflation that has remained above the central bank's tolerance band for six straight months.
"Expectations are for the RBI to raise policy rate at least by another 50 bps, with swaps repricing accordingly in coming sessions," according to a trader with a state-run bank.
The central bank kept its inflation forecast for the current financial year unchanged at 6.7% and the RBI governor said inflation has eased from its surge in April, but remains uncomfortably high and above the upper threshold of the target.
"We now expect the RBI to deliver a 25 bps rate hike at the September policy review and shift to a neutral policy stance. Beyond that, we expect it to deliver one more 25 bps rate hike in December," Barclays said in a report.
(Reporting by Dharamraj Lalit Dhutia; Editing by Shounak Dasgupta)