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Informist, Friday, Aug. 22, 2025

 

MUMBAI – Money markets are closed Saturday. On Monday, government bonds and overnight indexed swaps will take cues from the movement of US yields after US Federal Reserve Chair Jerome Powell's speech. Cues on a rate cut by the US Federal Open Market Committee at its meeting in September would lead to rise in gilt prices, dealers said. Swap rates will only indirectly track Powell's comments through the movement of US yields.

 

Powell on Friday hinted at a likely rate cut at the FOMC's September meeting but did not commit to cutting the benchmark lending rates. "While the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly," Powell said, speaking at the Fed's Jackson Hole Symposium.

 

After Powell's speech, the dollar index, which measures the strength of the dollar against a basket of six major currencies, fell to 97.73, against 98.62 Thursday and 98.22 Wednesday. The yield on the 10-year benchmark US Treasury note fell 8 basis points to 4.25%.

 

On Monday, the one-day call money rate may open above the Reserve Bank of India's repo rate of 5.50% on demand for funds due to goods and services tax outflows.

 

GOVERNMENT BONDS

Traders will closely track technical levels on gilts. If sentiment worsens and the 2035 bond yield tops 6.55-6.56%, the 6.58-6.60% level could be the next psychologically crucial level to watch out. Traders fear borrowing through state bonds will increase in the current financial year if the proposed GST reforms are announced by Diwali, dealers said.

 

Prices of longer tenure gilts may fall Monday as the RBI, post market hours, announced that 15 states plan to raise INR 341.50 billion in an auction Tuesday. Traders are also waiting for India's GDP data for Apr-Jun, due on Aug. 29, for further cues on domestic interest rates. Most expect the GDP to meet RBI's forecast of 6.5%, but if it is below 6.3%, gilt prices could rise, dealers said.

 

Traders are also waiting for clarity on the impact of the proposed reforms in GST structure on the central government's borrowing, and updates on the additional 25% US tariffs that are set to come into effect on Aug. 27. Bonds may also track the movement of crude oil prices and the rupee against the dollar.

 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.50-6.60%. On Friday, the 10-year benchmark 6.33%, 2035 ended at INR 98.42 or 6.55% yield.

 

OIS RATES

Swaps may take cues from US yields at open Monday. Next week, volumes may be muted due to lack of major trading cues until India's GDP growth for Apr-Jun is released on Aug. 29. Several traders may also be on leave for Ganesh Chaturthi celebrations in Mumbai. The outlook on GDP growth is mixed, with some expecting a print higher than the RBI's forecast of 6.5% due to a strong monsoon and a favourable base.

 

In an interview with CNBC-TV18 Thursday, Monetary Policy Committee member Saugata Bhattacharya said that a low GDP deflator may drive up real GDP growth in the June quarter. Other traders expect a lower print due to weak credit offtake and corporate earnings. While India's GST reforms are seen bringing down inflation, the RBI's MPC is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth while CPI inflation may be below the RBI's forecast of 3.1% for FY26 by 20-50 basis points, they said.

 

The one-year swap rate is seen in a range of 5.48-5.60%. The five-year contract is seen at 5.68-5.80%. The one-year swap rate ended at 5.53% Friday and the five-year swap rate ended at 5.74%.

 

CALL

The one-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds due to GST outflows. During the day, the call rate is seen in a range of 4.80-5.60%, dealers said. The three-day call money market rate settled at 4.95% Friday compared with the one-day call rate of 5.05% Thursday.

 

RBI AUCTION

--Nil 

 

LIQUIDITY 

--Total net outflow of INR 286.04 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 30.33 billion as coupon on state bonds on Saturday

--INR 9.88 billion as coupon on state bonds on Sunday

--INR 33.75 as coupon on state bonds on Monday

 

* Outflows

--INR 360.00 billion as payment for gilts on Monday

End

 

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

 

Reported by Gowri Lakshmi

Edited by Ashish Shirke

 

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