India Money Market Outlook
Gilts seen up, swaps down on rate cut hopes Fri
This story was originally published at 21:14 IST on 3 February 2025
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MUMBAI – Government bond prices are seen opening higher and overnight indexed swap rates are seen down due to expectations of a rate cut at the upcoming Reserve Bank of India's Monetary Policy Committee meeting on Friday, dealers said. The movement in crude oil prices, US Treasury yields and any declarations by US President Donald Trump may also be triggers.
Swaps and gilts may also be sensitive to the rupee's movement against the dollar, dealers said. The rupee ended at a record closing low of 87.1850 against the greenback on Monday.
On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks early in the day to meet reserve requirements. During the day, the call rate is seen in a range of 6.00-6.90%, dealers said.
GOVERNMENT BONDS
On Tuesday, gilt prices may open slightly higher on expectations of a policy rate cut on Friday at the MPC meeting, dealers said. At open, bonds may also take cues from the overnight movement in US yields and crude oil prices.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.62-6.70% during the day. On Monday, the bond settled at INR 100.86, or 6.67% yield.
OIS RATES
On Tuesday, swap rates may fall as traders build up their bets on the view of a rate cut by the MPC on Friday.
The impact of RBI's liquidity injection measures over the next few days is also being closely watched. The overnight Mumbai Interbank Offered Rate--the floating leg of the OIS contract--is expected to be set near 6.50%, with the banking system liquidity deficit also seen coming down, dealers said. The liquidity measures are seen as a precursor to a rate cut by the MPC.
The swap rate in the one-year segment is seen at 6.23-6.40% and in the five-year segment at 6.00-6.15%. On Monday, the one-year swap rate ended at 6.32% and the five-year swap rate closed at 6.07%.
Call
On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks early in the day to meet reserve requirements. RBI will conduct an overnight variable rate repo operation for INR 250.00 billion at 1000-1030 IST.
During the day, the call rate is seen in a range of 6.00-6.90%, dealers said. On Monday, the one-day call rate ended at 5.90%.
RBI AUCTION
--13 states to raise INR 336 billion via bond sale
--RBI to hold overnight VRR auction for INR 250 bln 1000-1030 IST
LIQUIDITY
--Total net inflows are INR 8.09 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 8.09 billion as coupon on state bonds
* Outflows
--INR 487.85 billion on reversal of overnight variable rate repo tender
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Srijita Bose
Edited by Avishek Dutta
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