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Informist, Monday, Aug. 11, 2025

 

MUMBAI – Government bond prices and overnight indexed swaps are likely to take cues from India's CPI data for July, due Tuesday at 1600 IST. Retail inflation in India likely fell to a record low of 1.3% in July, mainly because of the statistical effect of a high base and lower food prices, according to an Informist poll. CPI inflation was at 2.10% in June, the lowest since January 2019, and 3.60% a year ago. Traders have priced in a print lower than 1.5%, and bond prices and swap rates may react if the number surprises on the upside.

 

The Reserve Bank of India's Monetary Policy Committee's unanimous pause on rates and the RBI's forecasts for growth and inflation in the June quarter of 2026 suggest a high bar for rate cuts. However, traders still see the possibility of the panel cutting rates in Oct-Dec if GDP growth surprises on the downside, particularly with the US imposing a cumulative 50% tariff on Indian goods, dealers said.

 

Investors also await US inflation data, due post-market hours Tuesday to gauge the chances of a rate cut by the US Federal Open Market Committee in September. US CPI is seen rising 2.8% on year in July, according to consensus estimates from the Wall Street Journal. Bond and swaps may also track the movement of crude oil prices and the movement of the rupee against the dollar. Traders await developments on tariffs and India's response to the US levy, dealers said. 

 

GOVERNMENT BONDS

Bond prices may take cues from the state bond auction results. Six states will raise INR 84.50 billion through the sale of bonds on Tuesday. The indicative calendar for state borrowing for Jul-Sept showed eight states would borrow INR 147.00 billion on Tuesday. Traders will closely track technical levels, geopolitical developments and the movement in US Treasury yields.

 

Foreign banks and portfolio investors may remain on the sidelines before the US data, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.50% and that on the 6.79%, 2034 bond is seen at 6.50-6.57%. On Monday, the 2035 bond ended at INR 99.20, or 6.44% yield, while the 2034 bond ended at INR 101.71, or 6.54% yield.

 

OIS RATES

Swap rates may open steady as traders keep to the sidelines awaiting fresh rate cues in the form of US and India CPI inflation data for July, due Tuesday. Traders are assessing whether India's rate-setting panel will reduce the policy repo rate further, with some hopes diminished after the RBI policy review last week.

 

On the liquidity front, traders have priced in overnight borrowing rates close to the repo rate. Near-term swap rates will track the movement of the overnight Mumbai Interbank Outright Rate, which has been set above 5.40% since Jul. 18. The one-year swap rate is seen in the range of 5.45-5.56% Tuesday. The five-year contract is seen at 5.64-5.76%. On Monday, the one-year swap ended at 5.51% and the five-year swap ended at 5.68%.

 

CALL

On Tuesday, the one-day call money rate may open below the RBI's repo rate of 5.50% due to ample liquidity in the banking system. During the day, the call rate is seen in a range of 4.70-5.50%, dealers said. On Tuesday, the one-day call rate ended at 5.00%. 

 

RBI AUCTION

--Six states to raise INR 84.50 billion via bond sale

 

LIQUIDITY

--Total net inflows of INR 110.75 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 9.75 billion as coupon on state bonds

--INR 101.00 as redemption of state bonds

 

* Outflows

--Nil

 

End

 

Reported by Gowri Lakshmi

Edited by Deepshikha Bhardwaj

 

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