India Money Market Outlook
Gilts seen up, swaps steady on Fri rate cut hopes
This story was originally published at 21:14 IST on 4 February 2025
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MUMBAI – Government bond prices are seen higher and overnight indexed swap rates are seen steady on expectations of a repo rate cut by the Reserve Bank of India's Monetary Policy Committee on Friday, dealers said. Gilts and swaps may also take cues from the overnight movement in US Treasury yields.
Traders expect swaps and gilts to take cues from fluctuations in crude oil prices and potential declarations by US President Donald Trump. Additionally, market sentiment may be influenced by the rupee's movement against the US dollar, according to dealers.
On Wednesday, 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 6.00-6.70%, dealers said.
GOVERNMENT BONDS
On Wednesday, gilt prices may track US Treasury yields at open, dealers said. Prices may remain slightly higher on expectations of a policy rate cut Friday by the Monetary Policy Committee.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.70% during the day. On Tuesday, the bond settled at INR 100.81, or 6.67% yield.
OIS RATES
On Wednesday, swap rates may open steady as a rate cut of 25 basis points at the MPC meeting's outcome on Friday is already priced in across contracts, dealers said. Short-term swaps may fall further as the three-day policy review meeting begins Wednesday.
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 Tuesday, the one-year swap rate ended at 6.31% and the five-year swap rate closed at 6.07%.
Call
On Wednesday, 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 6.00-6.70%, dealers said. On Tuesday, the one-day call rate ended at 5.50%.
RBI AUCTION
--RBI to auction 91-day T-bills worth INR 120 bln on Wednesday
--RBI to auction 182-day T-bills worth INR 80 bln on Wednesday
--RBI to auction 364-day T-bills worth INR 80 bln on Wednesday
--RBI to hold overnight VRR auction for INR 250 bln 1000-1030 IST
LIQUIDITY
--Total net outflows are INR 306.71 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 585.60 million as coupon on 6.90%, 2034 green bond
--INR 17.73 billion as coupon on 7.09%, 2054 gilt
--INR 9.18 billion as coupon on state bonds
* Outflows
--INR 334.20 billion as payment on state bonds
--INR 250.01 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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