India Money Market Outlook
Gilts, swaps may take cues from Feb MPC minutes
This story was originally published at 21:30 IST on 21 February 2025
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MUMBAI – On Monday, government bond prices and overnight indexed swap rates will take cues from the minutes of the Reserve Bank of India's Monetary Policy Committee's February meeting, released post market hours Friday. Gilts and swaps will also take cues from the movement of US Treasury yields after US economic data is released over the weekend, and the movement of the rupee against the dollar. Crude oil prices may be another trigger, dealers said. Money markets are shut Saturday.
Bond prices may fall Monday after data released Friday showed that the RBI did not buy or sell gilts in the secondary market in the week ended Feb. 14. This was the second straight week the central bank has not bought or sold in the secondary market after buying gilts worth INR 388.15 billion through screen-based secondary market purchases in January. So far, the RBI also hasn't announced any auction under open market operation, while traders were expecting a press release on the same post market hours. Traders have bet on at least INR 600 billion more worth of gilt purchases through auction by the RBI in the Jan-Mar quarter.
On Monday, traders will assess guidance on further rate cuts in the next policy review from the minutes of the MPC meeting of Feb. 5-7. The minutes showed that members were concerned about a sharp slowdown in growth when it decided to cut the repo rate for the first time in nearly five years. Traders also await any additional measures by the RBI to ease the liquidity deficit in the banking system. Geopolitical developments and US trade policy may lend cues.
On Monday, the one-day call rate may open around the repo rate on demand for funds from banks. During the day, the call rate is seen in a range of 5.75%-6.40%, dealers said.
GOVERNMENT BONDS
On Monday, government bonds are likely to take cues from the movement of US Treasury yields after the release of US economic data over the weekend, along with market participants' interpretation of the MPC minutes.
Traders suggests that bond prices may fall on Monday after data released Friday showed that the RBI did not buy or sell gilts in the secondary market in the week ended Feb. 14.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.75% during the day. On Friday, the bond settled at INR 100.58, or 6.71% yield.
OIS RATES
On Monday, swap rates may take cues from the movement in US Treasury yields. Short-term swaps will take cues from the movement in the overnight MIBOR rate, which has been set well above the repo rate of 6.25% since the repo rate cut on Feb. 7.
Traders will assess any guidance from the MPC minutes on further rate cuts in the next policy review.
The one-year swap rate is seen at 6.24-6.36% and the five-year rate is seen at 6.02-6.15%. On Friday, the one-year swap rate ended at 6.30% and the five-year swap rate closed at 6.08%.
CALL
On Monday, the one-day call rate may open around the repo rate on demand for funds from banks. During the day, the call rate is seen in the range of 5.75%-6.40%. On Friday, the three-day call rate ended at 6.25%.
RBI AUCTION
--RBI to hold overnight VRR auction for INR 1.25 trillion 1000-1030 IST Monday
LIQUIDITY
--Total net outflows of INR 188.78 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 7.16 billion as coupon on state bonds on Saturday
--INR 53.72 billion as coupon on 7.26%, 2032 gilt on Saturday
--INR 50.37 billion as coupon on 6.76%, 2061 gilt on Saturday
--INR 30.09 billion as coupon on state bonds on Sunday
--INR 9.88 billion as coupon on state bonds on Monday
* Outflows
--INR 340.00 billion as payment for gilts on Monday
--INR 949.27 billion as reversal of 3-day variable rate repo tender on Monday
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Cassandra Carvalho
Edited by Ashish Shirke
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