India Money Market Outlook
Gilts seen steady, swaps lower before MPC outcome
This story was originally published at 20:27 IST on 3 December 2024
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MUMBAI – Government bond prices may open steady Wednesday as market participants will focus on the outcome of the Monetary Policy Committee meeting, dealers said. Overnight indexed swap rates may open lower as traders may continue to bet on a rate cut by the rate-setting panel of the Reserve Bank of India.
The RBI is seen loosening its monetary policy to spur economic activity after India's GDP for Jul-Sept grew at 5.4% against expectations of 6.5% by an Informist poll. Some traders expect a repo rate cut of 25 basis points to 6.25%, while others said the central bank could inject liquidity into the banking system through either a cash reserve ratio cut or open market purchases of bonds.
The movement of US Treasury yields will be closely watched after US job openings and labour turnover survey for October is released at 2030 IST, dealers said. Comments of US Federal Reserve officials Austan Goolsbee and Adriana Kugler may lend cues to US yields. Any developments in West Asia and Russia-Ukraine war may also impact gilt and swaps at the opening.
On Wednesday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to demand for funds from banks early in the day to meet reserve requirements.
GOVERNMENT BONDS
Government bond prices may open steady as market's focus will be on the RBI's possible decision at the policy meeting which begins Wednesday, dealers said. Gilts may also take cues from the movement on US Treasury yields after the US jobs data.
Traders expect bonds to consolidate after India's GDP growth slowed sharply in Jul-Sept, with most bets in favour of policy accommodation already in place.
Traders also await any news on the extension of RBI Governor Shaktikanta Das' tenure. His term ends on Dec. 10, and the announcement on either an extension of his term or appointment of a successor is expected this week. Das has been holding the position of governor for six years, and an extension is seen as good news on grounds of policy continuity. On the other hand, some dealers said that considering Das' stance on controlling inflation, the market may welcome a new governor who is seen more likely to cut rates.
The movement of US yields and crude oil prices could also lend cues to bond prices. The yield on the 6.79%, 2034 bond is seen at 6.68-6.75% Wednesday. On Tuesday, the 10-year benchmark 6.79%, 2034 gilt settled at INR 100.54, or 6.71% yield.
OIS RATES
On Wednesday, swap rates may open lower as traders may continue to bet on a rate cut by the MPC this week, dealers said. The fall may be limited as swap rates have hit key technical levels which may be hard to break, as traders may avoid large bets when the three-day policy meeting begins.
The swap rate in the one-year segment is seen at 6.28-6.38% and in the five-year segment at 5.97-6.07%. On Tuesday, the one-year swap rate ended at 6.33% and the five-year swap rate closed at 6.02%.
CALL
On Wednesday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to demand for funds from banks in early trade to meet reserve requirements. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. On Tuesday, the one-day call ended at 6.45%.
RBI AUCTION
--RBI to auction Treasury bills worth INR 190 bln on Wednesday
LIQUIDITY
--Total net outflows of INR 240.80 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo.
* Inflows
--INR 14.20 billion as coupon on state bonds
--INR 3.37 billion as coupon on 6.13%, 2028 gilt
* Outflows
--INR 258.37 billion payment on state bonds
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Srijita Bose
Edited by Ashish Shirke
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