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Informist, Thursday, Feb. 6, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are seen opening steady before the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due at 1000 IST, dealers said. While most traders expect the panel to cut the repo rate by 25-basis points, gilts and swaps will take cues from the RBI Governor Sanjay Malhotra's statement. Traders will also look for cues regarding the future trajectory of interest rates from the stance the rate-setting panel assumes.

At open, gilts and swaps may also take cues from the overnight movement of US Treasury yields after the release of the US employment report for January showed that the initial claims for state unemployment benefits rose 11,000 to 219,000 for the week ended Saturday. 

Traders will also remain cautious regarding the movement of the rupee against the dollar after it closed at a record closing low of 87.5775 a dollar on Thursday. Fluctuations in crude oil prices and US President Donald Trump's comments on tariffs may also lend cues, dealers said.

On Friday, the three-day call 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.

GOVERNMENT BONDS

On Friday, gilt prices may open steady on caution before the MPC meet outcome at 1000 IST, dealers said. Prices will also be sensitive to any announcement of liquidity easing measures, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.60-6.70% during the day. On Thursday, the bond settled at INR 100.93, or 6.65% yield.

OIS RATES

On Friday, swap rates are seen opening steady before RBI Governor Malhotra presents the MPC meet outcome at 1000 IST.

In the event of a rate cut by the MPC, rates across tenures could fall another 15 bps, dealers said. Short-term swaps may fall further if the RBI announces measures to immediately boost liquidity conditions, they said. 

Traders also await the US employment report for January, due post-market hours Friday, for non-farm payrolls data for cues on further rate cuts by the US Federal Open Market Committee.

The swap rate in the one-year segment is seen at 6.15-6.50% and in the five-year segment at 5.90-6.23%. On Thursday, the one-year swap rate ended at 6.32% and the five-year swap rate closed at 6.07%.

CALL

On Friday, the three-day call 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, although eyes will be on the MPC's interest rate decision. On Thursday, the one-day call rate ended at 6.25%.

RBI AUCTION

--Govt to auction two gilts worth INR 220 billion 1230-1330 IST

--RBI to hold 56-day VRR auction for INR 500 bln 1530-1600 IST 

--RBI to hold 3-day VRR auction for INR 1.50 tln 1200-1230 IST

LIQUIDITY

--Total net inflows are INR 11.48 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 11.48 billion as coupon on state bonds

* Outflows

--INR 1.62 trillion on reversal of 14-day variable rate repo tender

--INR 216.74 billion on reversal of overnight variable rate repo tender

End

US$1 = INR 87.58

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Srijita Bose

Edited by Akul Nishant Akhoury

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