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Informist, Friday, Aug. 1, 2025

 

MUMBAI – On Saturday, the two-day call money rate is likely to open below the Reserve Bank of India's repo rate as surplus liquidity rises due to month-end inflows. Volumes are expected to be low, as is usually the case on Saturdays, as banks meet their requirement for funds the previous day.

 

During the day, the call rate is seen in a range of 4.80-5.45% and the triparty repo rate in seen in a range of 4.70-5.40%. On Friday, the three-day call ended at 5.35%. 

 

On the global front, US non-farm payrolls rose by 73,000 in July, the US Bureau of Labor Statistics reported Friday. This reading was worse than the market expectation of 110,000, and followed the increase of 14,000 recorded in June. This could lead US Treasury yields to fall and thereby impact gilts and swaps on Monday. 

 

GOVERNMENT BONDS

Gilts are not traded on Saturdays. On Monday, bond prices are likely to take cues from the movement in US yields after the US jobs data, dealers said. Traders have already pared their rate cut bets for next week's Monetary Policy Committee meeting outcome, and without significant cues, gilts may trade in a thin band during the day, they said.

 

Traders will also look out for any further announcements on US tariffs on India. The lack of a deal before the Aug. 1 deadline is likely to keep the rupee under pressure. However, some demand could come as traders now expect US tariffs to lead to a slowdown in domestic growth, which could prompt the RBI to cut rates later in the year, dealers said. 

 

Traders will also look out for any announcement on liquidity management – including a new framework – by the RBI for cues to trade gilts maturing up to seven years. RBI Governor Sanjay Malhotra had said he would like the call money rates to adhere to the policy repo rate of 5.50%.

 

Any movement in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.35-6.41% and that on the 6.79%, 2034 bond is seen at 6.38-6.47%. On Friday, the 2035 gilt ended at INR 99.72 or 6.37% yield, and the 2034 bond ended at INR 102.53, or 6.42% yield. 

 

OIS RATES

Swaps are not traded Saturdays. On Monday, overnight indexed swap rates may track the movement of US Treasury yields after the US employment report. Swaps may also track the movement of the rupee against the dollar, crude oil prices, and government bond yields. Traders await further clarity on Trump's tariff policy on Indian goods.

 

Traders are now mainly focussed on the MPC meeting outcome next week, dealers said. On the liquidity front, traders have priced in overnight borrowing rates close to the repo, not below or above, and await the central bank's draft guidelines on the liquidity management framework. Near-term swap rates will track the movement of the overnight Mumbai Interbank Offered Rate.

 

The one-year swap rate is seen in the range of 5.42-5.58% Monday. The five-year contract is seen at 5.62-5.78%. On Friday, the one-year swap rate ended at 5.51% and the five-year swap rate ended at 5.72%. 

 

RBI AUCTION

--Nil

 

LIQUIDITY

--Total net inflows of INR 93.99 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 11.67 billion as coupon on state bonds

--INR 36.91 billion as coupon on 8.26%, 2027 gilt

--INR 45.41 billion as coupon on 8.32%, 2032 gilt

 

* Outflows

--Nil

End

 

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

 

Reported by Srijita Bose 

Edited by Tanima Banerjee

 

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