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Informist, Tuesday, Aug. 26, 2025

MUMBAI – Money markets are shut Wednesday on account of Ganesh Chaturthi. On Thursday, government bond prices and overnight indexed swap rates may take cues from the movement in US Treausry yields at open, dealers said. 

Traders are also awaiting India's GDP data for Apr-Jun, due Friday at 1600 IST, for further cues on domestic interest rates. According to an Informist poll, India's GDP is likely to have expanded 6.7% in the first quarter of 2025-26 (Apr-Mar).

On the global front, investors await the US Personal Income and Outlays for July Friday, wherein core inflation is seen at its highest level since late 2023 at 2.9%. Traders also await clarity on the tariffs by the US on India, especially after Fitch said US tariffs pose a moderate downside risk to India's growth forecast. The tariffs are set to go live Wednesday.

On Thursday, the one-day call money rate may open above the Reserve Bank of India's repo rate of 5.50% on demand for funds ahead of INR-750-billion, overnight variable rate reverse repo auction, dealers said. 

GOVERNMENT BONDS

On Thursday, gilts may take cues from the movement in US yields or any announcement by the RBI that could provide some support to gilt prices, dealers said. Traders will closely track technical levels on gilts. If sentiment worsens and the 10-year benchmark 6.33%, 2035 bond yield tops the 6.65-6.66% level, 6.68-6.70% could be the next psychologically crucial level to watch out for, they said.

Prices of longer tenure gilts may fall due to the heavy supply of long-term gilts Friday. The government will sell INR 160 billion of the 6.68%, 2040 bond, and INR 160 billion of the 6.90%, 2065 bond at the auction Friday. Traders fear that state borrowing will increase in the current financial year if the proposed GST reforms are announced by Diwali, dealers said. This could lead to muted demand by long-term investors in the secondary market, dealers said. 

Traders are also awaiting India's GDP data for Apr-Jun, due Friday, for further cues on domestic interest rates. Most expect the GDP to be around the RBI's forecast of 6.5%. If the growth is below 6.3%, gilt prices could rise, dealers said.

On the domestic front, traders await clarity on the impact of the proposed reforms in goods and services tax rates on the central government's borrowing and updates on the additional 25% US tariffs that are set to come into effect on Wednesday.

Bonds may also track the movement in crude oil prices and the rupee against the dollar. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.55-6.68%. On Tuesday, the 2035 bond ended at INR 98.09 or 6.60% yield. 

OIS RATES

On Thursday, swap rates will track the movement in US Treasury yields at the opening, dealers said. Swap rates will also track the movement of gilt yields during the day.

Volumes may be muted due to lack of major trading cues until India's GDP growth for Apr-Jun is released at 1600 IST Friday. According to an Informist Poll of 17 economists, India's GDP is expected to have expanded 6.7% in the first quarter of FY26. In an interview with CNBC-TV18 Thursday, Monetary Policy Committee member Saugata Bhattacharya also noted that a low GDP deflator may drive up real GDP growth in the June quarter.

While India's goods and services tax reforms are seen bringing inflation down, the RBI's rate-setting panel 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 bps, they said.

The one-year swap rate is seen in the range of 5.48-5.60% Thursday. The five-year contract is seen at 5.70-5.83%. On Tuesday, the one-year swap rate ended at 5.52%, and the five-year swap rate ended at 5.78%. 

CALL

On Thursday, the one-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds. During the day, the call rate is seen in the range of 4.70-5.60%, dealers said. On Tuesday, the two-day call rate ended at 5.50%. 

RBI AUCTION

--RBI to hold overnight VRRR auction for INR 750 billion at 0930-1000 IST Thursday

--RBI to auction 91-day T-bills worth INR 100 billion on Thursday

--RBI to auction 182-day T-bills worth INR 60 billion on Thursday

--RBI to auction 364-day T-bills worth INR 50 billion on Thursday

LIQUIDITY

--Total net outflow of INR 10.01 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and variable rate reverse repo operations.

* Inflows

--INR 25.73 billion as coupon on state bonds on Wednesday

--INR 118.00 billion on redemption of 91-day T-bills on Thursday

--INR 71.12 billion on redemption of 362-day T-bills on Thursday

--INR 4.69 billion as coupon on state bonds on Thursday

--INR 59.38 billion as coupon on 7.95%, 2032 bond on Thursday

* Outflows

--INR 288.92 billion on payment of state bonds on Thursday

End

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

Reported by Srijita Bose

Edited by Akul Nishant Akhoury

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