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Informist, Wednesday, Jan. 15, 2025

MUMBAI – Overnight indexed swap rates are expected to fall on the Reserve Bank of India's announcement late Wednesday that it will hold variable rate repo auctions on all working days from Thursday. Government bonds and swap rates will also take cues from US yields post the release of the US CPI data.

The US CPI data was mixed – headline CPI inflation rose 0.4% on month from 0.3% in November. However, core inflation eased to 0.2% on month from 0.3% over the last few readings. The movement of the rupee against the dollar will also be keenly eyed by traders to lend cue to bond prices and swap rates, dealers said. The movement in crude oil prices may also lend direction. 

On Thursday, the one-day call rate may open above the repo rate of 6.50% on demand for funds from banks, with liquidity conditions seen largely unchanged from Wednesday. Rates might ease following the RBI's decision to hold daily variable rate repo auctions. During the day, the call rate is seen in a range of 6.00-6.80%, dealers said.

GOVERNMENT BONDS

On Thursday, bond prices may take cues from the movement in US yields after the release of US CPI data for December. Any geopolitical cues or a further rise in crude oil prices will also impact gilt prices.

Prices of gilts will also be sensitive to the movement in the Indian rupee against the dollar, dealers said. The RBI's intervention in the foreign exchange market with dollar sales to support the rupee has put further strain on liquidity in the banking system. Should the rupee appreciate against the dollar, as it did on Wednesday, hopes of a February rate cut in India will increase, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.77-6.88% during the day. On Wednesday, the bond settled at INR 99.82, or 6.81% yield.

OIS RATES

Short-term swap rates may fall sharply on Thursday after the RBI said after market hours that it would conduct daily variable rate repo operations. It also allowed primary dealerships to take part in these auctions, which would help anchor overnight money market rates to the repo rate of 6.50%.

The movement of US Treasury yields after the release of US CPI inflation data for December will also be eyed, dealers said. Traders are also looking ahead to Trump's inauguration on Jan. 20 for cues.

The swap rate in the one-year segment is seen at 6.50-6.70% and in the five-year segment at 6.25-6.45%. On Wednesday, the one-year swap rate ended at 6.53% and the five-year swap rate closed at 6.28%.

CALL 

On Thursday, the one-day call rate may open above the repo rate of 6.50% on demand for funds from banks, with liquidity conditions seen largely unchanged from Wednesday. During the day, the call rate is seen in a range of 6.00-6.80%, dealers said. On Wednesday, the one-day call rate ended at 6.10%.

RBI AUCTION

--Government to buy back INR 300 billion worth of five gilts at 1030-1130 IST 

--RBI to conduct an overnight variable rate repo auction for INR 500 billion at 1000-1030 IST

LIQUIDITY

--Total net inflows of INR 106.89 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.

* Inflows

--INR 310.00 billion on redemption of 91-day T-bills 

--INR 99.61 billion on redemption of 364-day T-bills

--INR 119.96 billion on redemption of 6.89%, 2025 gilt

--INR 4.13 billion as coupon on 6.89%, 2025 gilt

--INR 7.46 billion as coupon on state bonds

* Outflows

--INR 254.01 billion as payment on 91-day T-bills 

--INR 87.50 billion as payment on 182-day T-bills

--INR 92.76 billion as payment on 364-day T-bills

End

Reported by Vidhushi RajPurohit

Edited by Saji George Titus

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