India Money Market Outlook
Gilts seen up Tue on more MPC stance-change bets
This story was originally published at 22:37 IST on 30 September 2024
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MUMBAI – On Tuesday, government bond prices may open higher, while overnight indexed swap rates may fall on bets of the Reserve Bank of India's Monetary Policy Committee changing its policy stance to "neutral" from "withdrawal of accommodation" next week, dealers said.
Data released at 1700 IST shows India's eight core industries' growth fell to (-)1.8% on year in August, the lowest since February 2021. The six-member panel, with three new external members, is scheduled to meet Oct. 7-9. Weaker domestic economy activity, after the US Federal Open Market Committee's 50-basis-point rate cut in September, may convince the panel to finally soften its stance, dealers said.
The overnight movement in US Treasury yields and crude oil prices may also affect gilts and swap rates at the open. US Federal Reserve Chair Jerome Powell's speech at 2325 IST Monday may also lend cues.
On Tuesday, the two-day call money rate may open near the Reserve Bank of India's repo rate due to demand for funds from banks in early trade to meet the reserve requirements. Financial markets are shut on Wednesday for Gandhi Jayanti.
BONDS
On Tuesday, gilts may open higher. A fall in core sector activity, released after market hours Monday, may spur further bets on domestic monetary policy easing next week, dealers said.
Traders may take cues from the auction cut-offs at the state bond auction at 1030-1130 IST. Twelve states plan to raise INR 199.42 billion through the auction.
The market may also take cues from the movement of US Treasury yields. Foreign fund inflows are likely to continue because of the inclusion of Indian bonds in JP Morgan's emerging market bond index after the weightage was increased to 4% this month. The subsequent fall in US yields due to change may also increase foreign inflows due to an appealing interest rate differential between the yields of US Treasury notes and Indian gilts.
The overnight movement in crude oil prices may also affect gilt prices at the open. Any uptick in gilt yields may also prompt purchases by domestic banks, which will have to maintain larger buffers of liquid assets, such as government securities, due to an impending tightening of the guidelines on liquidity coverage ratio. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.73-6.79% on Tuesday. On Monday, the benchmark paper closed at INR 102.43 or 6.75%.
OIS RATES
On Tuesday, OIS rates may take cues from movement in US Treasury yields and crude oil prices, dealers said. US Fed Chair Powell's speech at 2325 IST Monday may also lend cues.
The swap rate in the one-year segment is seen at 6.35-6.53% and in the five-year segment at 5.90-6.10%. On Monday, the one-year swap rate closed at 6.38% and the five-year at 6.03%.
CALL
On Tuesday, the two-day call money rate may open near the RBI's repo rate due to demand for funds from banks in early trade to meet the reserve requirements.
During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. On Monday, the one-day call money rate ended at 6.24%.
RBI AUCTION
--12 states to raise INR 199.42 billion through bonds
--RBI to conduct 3-day variable rate reverse repo auction
LIQUIDITY
--Total net inflows of INR 2.72 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repos.
* Inflows
--INR 2.72 billion as coupon on state bonds
* Outflows
--Nil
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Srijita Bose
Edited by Manisha Baxla
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