An Overnight Index Swap (OIS) is an interest rate swap in which one party pays a fixed rate and receives a floating rate linked to a compounded overnight benchmark rate — such as the RBI's repo rate or the Secured Overnight Financing Rate (SOFR) globally. The floating leg of an OIS accrues daily based on the realised overnight rate, while the fixed leg is a pre-agreed rate. OIS rates are considered among the purest indicators of market expectations for central bank policy rates because they are based directly on overnight lending rates rather than credit-sensitive interbank rates like LIBOR. In India, the OIS market uses the overnight MIBOR or repo rate as the floating reference. Indian banks, primary dealers, and institutional investors use OIS to hedge or express views on future RBI rate actions, and OIS spreads over government bond yields are a key indicator of monetary policy expectations.
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