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Informist, Tuesday, Sept. 30, 2025

MUMBAI – On Wednesday, government bond prices and overnight indexed swap rates are seen steady ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due at 1000 IST. Gilts and swaps will take cues from the decision and comments by the panel, dealers said. 

Most traders expect a soft tone by the panel, with a downward revision of 25-70 basis points in the CPI inflation estimate for the current financial year ending March from 3.1%. Others see the panel raising concern about India's growth prospects amid external headwinds. However, some fear the forecast for GDP growth in FY26 will be increased with the rationalisation in Goods and Services Tax. A marginal section of the market is also expecting the panel to cut the repo rate by 25 bps Wednesday. 

Traders may take cues from geopolitical developments, especially regarding US tariffs on Indian goods. Gilts and swaps may also track the movement of crude oil prices or US Treasury yields, though the impact would be limited before and after the rate-setting panel's decision, dealers said. Traders may also take cues from the movement in the rupee against the dollar. 

Wednesday, the two-day call money rate is likely to be near the RBI's repo rate due to reversal of the variable rate repo auction.

GOVERNMENT BONDS

On Wednesday, government bond prices are seen steady ahead of the outcome of the RBI's Monetary Policy Committee meeting. The decision and comments by the panel will give cues to the market. 

If the RBI's panel chooses to cut the repo rate by 25 bps Wednesday, the 10-year gilt is seen falling to 6.35%, dealers said. If the the comments of the panel suggest scope of further rate cuts without cutting the rate, the 2035 bond yield is seen falling up to 6.40-6.45% levels. However, if the tone of the panel is harsh and it signals that further rate cuts are not on the cards, the 10-year gilt yield could rise to 6.65% levels, dealers said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.65% on Wednesday.

OIS RATES

On Wednesday, swap rates may open steady due to caution ahead of RBI Governor Malhotra's speech outlining the Monetary Policy Committee's decision at 1000 IST, dealers said. The panel's decision and the commentary on growth and inflation are likely to determine the movement of swap rates through the day.

Some sections of the market remain uncertain about further rate cuts in India after the US Federal Reserve signalled it would take a slow and steady path to rate cuts, though OIS rates are pricing in a rate cut of 25 bps in India by December. Some traders ramped up bets of a rate cut Wednesday as well. With such a cut already reflected, comments by the RBI governor signalling further rate cuts may have limited impact on swap rates, though a reduction in India's policy rate to 5.25% Wednesday will send OIS rates tumbling, dealers said. 

The one-year swap rate is seen in the range of 5.40-5.55% and the five-year contract at 5.62-5.80%. 

CALL

Wednesday, the two-day call money rate is likely to be near the RBI's repo rate due to reversal of the variable rate repo auction. Volumes in the first hour of trading may be thin before the RBI's Monetary Policy Committee decision at 1000 IST. During the day, the two-day call money rate is seen in a range of 4.75-5.65%, dealers said.

RBI AUCTION

--RBI to hold 2-day VRR auction for INR 1 trillion

--RBI to auction 91-day T-bills worth INR 70 billion

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

--RBI to auction 364-day T-bills worth INR 60 billion 

LIQUIDITY

--Total net outflows of INR 331.80 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 9.20 billion as coupon on state bonds 

* Outflows

--INR 341.00 billion as payment on state bonds

--INR 851.97 billion as reversal of overnight VRR tender

End

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

Reported by Srijita Bose

Edited by Avishek Dutta

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