Rate cuts in India: Participants in India's debt market are revising their expectations for the commencement of rate cuts by at least two months, attributing this shift to the recent hawkish tone of the monetary policy statement, as reflected in the overnight index swap (OIS) market, traders have reported.

Alok Singh, the group head of treasury at CSB Bank in Mumbai, said, "From the swap market move, we can extrapolate that the chances of rate cuts have been pushed back further to at least the third quarter of next fiscal. Rate cut in India may happen only when the Fed starts to cut rates, and when there is some slowdown in the economy."

Last week, the Reserve Bank of India (RBI) maintained its policy rate and stance unchanged for a sixth consecutive meeting, reaffirming its commitment to achieving the 4 per cent inflation target. Governor Shaktikanta Das emphasized that the last mile of disinflation is often the "most challenging."

India's OIS market has witnessed 'paying pressure,' with the impact being intensified by the unwinding of an earlier 'received position' by a large private bank, according to traders.

The one-year swap INR1YMIBROIS=CC climbed to 6.71 per cent, and the five-year INR5YMIBROIS=CC rose to 6.33 per cent on Tuesday, marking an increase of approximately 12 basis points (bps) from before the RBI policy announcement last week.

OIS markets reflect interest rate expectations. A paying bias indicates anticipations of interest rates remaining higher or increasing.

Economists at Citi, Samiran Chakraborty, and Baqar M Zaidi anticipate the RBI to maintain its current stance for a longer duration as it carefully navigates the last phase of disinflation. They project a shift in the policy stance to neutral in June and anticipate the first rate cut in October, contrary to their earlier predictions of April and August.

Traders noted that the Federal Reserve's postponement of its rate cuts has also dampened expectations of an early easing in India.

While markets are not anticipating any rate action from the Fed in March, there is now divergence between May and June for the potential timing of U.S. rate cuts.

ICICI Securities Primary Dealership anticipates the Fed easing cycle to commence in June, with an expectation of a cumulative 100 bps of cuts. The primary dealer foresees a shallow rate cut cycle of 50 bps in India, a view echoed by several other investors.

(With Reuters inputs.)