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Informist, Wednesday, Aug. 20, 2025

MUMBAI – Government bond prices and overnight interest rates may take cues from minutes of the Reserve Bank of India's Monetary Policy Committee meeting in August, released post market hours Wednesday. At the meeting on Aug. 4-6, Deputy Governor Poonam Gupta said she did not see the scope or rationale for further cuts in the RBI's policy rate. However, Rajiv Ranjan said a case could be made that there is room for policy easing due to concerns about a slowdown in growth.

Bonds may also track the movement of crude oil prices and the movement of the rupee against the dollar. Swap rates are likely to open steady after the MPC minutes were not seen changing the market's view on India's interest rate trajectory, dealers said. Traders also await the Jackson Hole Economic Symposium, where US Federal Reserve Chair Jerome Powell is scheduled to speak Friday.

GOVERNMENT BONDS

Traders will assess minutes of the RBI's rate-setting panel's August meeting. Traders may also place some short bets ahead of Friday's gilts auction, dealers said. Traders will closely track technical levels on gilts. If sentiment worsens and the 2035 bond yield breaches 6.55% on Thursday, the 6.58-6.60% level could be the next psychologically crucial level to watch out for the 10-year benchmark yield.

On the policy front, while the goods and services tax reforms are seen moderating inflation, the MPC is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth, they said. Traders now see CPI inflation falling below the RBI's forecast for 2025-26 (Apr-Mar) by 30-50 basis points.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.48-6.58%. On Wednesday, the 2035 bond ended at INR 98.80 or 6.50% yield. 

OIS RATES

The movement in US Treasury yields overnight after the release of minutes of the US FOMC's last meeting may lend cues to swaps. In the minutes of the MPC's August meeting, some members including Nagesh Kumar seemed to favour further rate cuts, citing numerous risks to economic growth and employment from tariffs imposed by the US on India's exports. 

The one-year swap rate is seen in the range of 5.48-5.60% Wednesday. The five-year contract is seen at 5.68-5.80% Thursday. On Wednesday, the one-year swap rate ended at 5.53% and the five-year swap rate ended at 5.72%.

CALL

The one-day call money rate may open above the RBI's repo rate of 5.50% due to demand for funds ahead of GST outflows. RBI will hold an overnight variable rate repo auction for INR 500 billion at 0930-1000 IST. During the day, the call rate is seen in the range of 4.80-5.70%, dealers said. On Wednesday, the one-day call ended at 5.47%. 

RBI AUCTION

* RBI to auction overnight variable rate repo worth INR 500 billion

LIQUIDITY

--Total net inflow of INR 167.16 billion scheduled on Thursday. 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 123.00 billion as redemption of 91-day T-bills

-- INR 80.18 billion as redemption of 364-day T-bills 

-- INR 7.15 billion as coupon on state bonds 

-- INR 233.60 billion as 3-day reverse repo

* Outflows

-- INR 119.00 billion as payment for 91-day T-bills 

-- INR 80.00 billion as payment for 182- day T-bills

-- INR 77.77 billion as payment for 364-day T-bills

End

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

Reported by Gowri Lakshmi

Edited by Avishek Dutta

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