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Informist, Friday, Jul. 18, 2025

MUMBAI – On Saturday, the two-day call rate may open slightly below the Reserve Bank of India's repo rate due to comfortable liquidity conditions. Volume is expected to be low, which is generally the case for working Saturdays, as banks meet their funding requirements the previous day. Government bonds and overnight indexed swaps are not traded on Saturday.

During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate in a range of 4.70-5.25%. On Friday, the three-day call money rate ended at 5.10%, while the triparty repo rate ended at 5.26%.

GOVERNMENT BONDS

On Monday, gilts may take cues at open from the movement in US Treasury yields over the weekend. Traders may build up portfolios betting on a rate cut or softer commentary from the RBI at the monetary policy review in early August, dealers said.

Short-term bonds may remain well bid after RBI Governor Sanjay Malhotra provided clarity on the central bank's liquidity management aims and said he would ideally like call money rates to adhere to the policy repo rate of 5.50%, dealers said. The 10-year benchmark 6.33%, 2035 gilt may underperform other gilts during the week ahead of its scheduled auction on Jul. 25.

Traders also expect India and the US to strike a preliminary trade deal soon. This is likely to help the rupee appreciate and also result in some foreign portfolio investment inflows into both equities and fixed income, dealers said. The rupee largely traded below 86 a dollar again Friday.

Crude oil price movements may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.34% and that on the most traded 6.79%, 2034 bond is seen at 6.33-6.39%.  On Friday, the 6.33%, 2035 bond ended at INR 100.16 or 6.31%, while the 6.79%, 2034 bond ended at INR 102.96 or 6.36%.

OIS RATES

On Monday, swaps may track the movement of US Treasury yields, dealers said. Traders expect the US Federal Open Market Committee to hold rates at its meeting at the end of this month, and some traders expect the RBI's Monetary Policy Committee will not cut rates further until the FOMC does, to protect the interest rate differential between the two countries. Traders will closely track any comments from US President Donald Trump on the US Federal Reserve Chair Powell. 

On the domestic front, traders will track overnight borrowing rates and the overnight MIBOR. Traders do not expect the RBI to announce any further VRRR auctions until next Friday as goods and services tax outflows start on Monday. Traders are now pricing in an overnight call money rate of 5.40-5.50%, particularly after RBI Governor Sanjay Malhotra said that the call money rate should be closer to the repo rate. Swaps may track the movement in gilt yields.

Swap traders will also track developments in US-India trade talks and the negotiations between the US and other trading partners, dealers said. The impact of a US-India trade deal, or the lack thereof, will be reflected in swaps through the movement of the rupee against the dollar, dealers said. The one-year swap rate is seen in the range of 5.46-5.60% Monday. The five-year contract is seen at 5.62-5.78%. On Friday, the one-year swap ended at 5.50% and the five-year swap at 5.70%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of INR 19.62 billion. 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

--INR 13.26 billion as coupon on state bonds

--INR 6.37 billion as coupon on 7.02%, 2031 gilt

* Outflows

--Nil

End

Reported by Vidhushi RajPurohit

Edited by Saji George Titus

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