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Informist, Friday, May 30, 2025

MUMBAI – On Saturday, the two-day call rate will likely open below the Reserve Bank of India's repo rate of 6.00% due to comfortable liquidity. As is usually the case on Saturdays, call money market volumes will likely remain low.

During the day, the call rate is seen in a range of 5.50-5.85% and the triparty repo rate in a range of 5.40-5.80%. On Friday, the three-day call ended at 5.75%.

Government bonds and overnight indexed swap rates are not traded on Saturdays.

GOVERNMENT BONDS

On Monday, bond prices are likely to open sharply higher after the RBI, post market hours, announced a buyback auction of INR 250 billion. The announcement was unforeseen. Traders said they had expected a buyback only in the March quarter of 2025-26 (Apr-Mar). Moreover, the government had made no provision for gilt buybacks in FY26 in the Budget tabled in February.

Gilts may also take cues from the movement of US Treasury yields over the weekend. On the domestic front, caution may set in ahead of the RBI's Monetary Policy Committee's three-day meeting starting Wednesday. Bonds have priced in a 25-basis-point rate cut at the outcome, but traders await RBI Governor Sanjay Malhotra's commentary on the rate outlook and any announcement to boost the surplus liquidity in the banking system. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.25-6.30% Monday. The yield on the 6.33%, 2035 bond is seen at 6.15-6.25%. On Friday, the 6.79%, 2034 gilt ended at INR 103.50, or 6.29% yield. The 6.33%, 2035 bond ended at INR 100.72, or 6.23% yield. 

OIS RATES

On Monday, traders are going to continue assessing India's rate cut trajectory after India's GDP growth in the March quarter was higher than the market expected, dealers said.

Lower-than-target inflation levels should continue to lead to further repo rate cuts, though the extent or pace of such cuts may be lower than the market was pricing in, dealers said. The consensus view remains that the repo rate could be cut by at least 50 bps later in 2025 from the current 6.00%. Traders may avoid large bets later in the week as the RBI's three-day MPC meet begins Wednesday.

Traders will also track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.48-5.70% Friday. The five-year contract is seen at 5.53-5.78%. On Friday, the one-year swap closed at 5.60% and the five-year swap closed at 5.68%.

RBI AUCTION

--Nil

LIQUIDITY

--There are no inflows or outflows scheduled Saturday. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.

* Inflows

--Nil

* Outflows

--Nil

End

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

Reported by Cassandra Carvalho

Edited by Tanima Banerjee

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