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Informist, Thursday, Aug. 14, 2025

 

MUMBAI – On Saturday, the two-day call money rate may open below the Reserve Bank of India's repo rate of 5.50% on low demand for funds, and thin trade, dealers said. 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 4.70-5.60%, dealers said. On Thursday, the four-day call ended at 5.10%. The RBI will hold a three-day variable rate reverse repo auction for INR 250 billion at 0930-1000 IST Monday. Traders were not expecting this auction, and subscription could be less ahead of goods and service tax outflows next week. 

 

Indian financial markets are shut Friday for Independence Day. Gilts and swaps are not traded Saturdays.

 

GOVERNMENT BONDS

On Monday, bond prices may take cues from geopolitical developments after the meeting between US President Donald Trump and Russian President Vladimir Putin, and any subsequent actions that may impact tariffs on India. Traders speculated that even if Trump and Putin agree to more favourable ties, Trump is unlikely to immediately revoke tariffs on India. Any increase in government expenditure to provide support to those impacted by tariffs may weigh on bond prices due to fear of an increase in government borrowing. Bonds may also take cues from the movement of US Treasury yields after the release of US economic data.

 

Bond prices may also take cues from the result of the INR-300-billion government switch auction. On Monday, the government will switch eight gilts worth INR 300 billion with seven longer-term papers that mature in eight to 14 years, which could put pressure on gilts of this maturity in the secondary market.

 

Traders will closely track technical levels on gilts. If sentiment worsens, traders fear that due to lack of buying interest, the 6.52-6.53% level could be the next psychologically crucial level to watch for on the 10-year benchmark yield. Some traders expect the fall in prices to have bottomed out because there is no expectation of a rate hike and some traders still expect more rate cuts. Traders are also preparing for next week's auction. The government is scheduled to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year gilt next week.

 

Bonds may also track the movement of crude oil prices as well as the movement of the rupee against the dollar. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.35-6.45%. On Thursday, the 2035 gilt ended at INR 99.49 or 6.40% yield.

 

OIS RATES

On Monday, the rates may take cues from the movement in US Treasury yields after the meeting of US President Donald Trump and Russian President Vladimir Putin, dealers said. Should the two leaders manage to chart out a plan for an end to the war between Russia and Ukraine, offshore receiving may drive swap rates lower, traders said.

 

Traders are assessing whether India's rate-setting panel will reduce the policy repo rate further, with some hope diminished after the RBI policy review last week. The MPC'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 from Aug. 27, dealers said.

 

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.

 

The one-year swap rate is seen in the range of 5.45-5.56% Monday. The five-year contract is seen at 5.62-5.76%. On Thursday, the one-year swap rate ended at 5.51% and the five-year swap rate ended at 5.67%. 

 

RBI AUCTION

--Nil

 

LIQUIDITY

--Total net inflows of INR 206.25 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 87.64 billion as redemption of 364-day Treasury bills on Friday

--INR 14.68 billion as coupon on state bonds on Friday

--INR 39.80 billion as coupon on 8.24%, 2027 gilt on Friday

--INR 54.34 billion as coupon on 8.28%, 2032 gilt on Friday

--INR 9.79 billion as coupon on state bonds on Saturday

 

* Outflows

--Nil

 

End

 

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

 

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

 

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