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Informist, Tuesday, Dec. 2, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may open steady Wednesday as the Reserve Bank of India's Monetary Policy Committee begins its three-day meeting. Traders remain divided on their views. Some traders expect the MPC to cut the repo rate by 25 basis points in order to support growth after near-zero CPI inflation in October. Others said the rate-setting panel would avoid using its limited rate ammunition after data showed India's GDP grew was at a six-quarter high of 8.2% in the September quarter.

Bond prices may remain well bid as traders expect the RBI to announce a calendar for purchasing gilts through open market operations. Traders estimate the central bank will buy INR 1.5 trillion to INR 2.0 trillion worth of gilts by March. The additional demand from the RBI is likely to keep gilt yields capped despite reduced risk appetite from market participants.

During the day, gilts and overnight indexed swap rates may also take cues from the overnight movement of US Treasury yields and crude oil prices, as well as the rupee. Some traders fear the MPC may avoid cutting rates in the face of the rupee's recent weakness. The domestic currency is seen falling to a record low of 90.00 a dollar in the near term unless a trade deal is struck between India and the US. The rupee hit a record low of 89.9525 Tuesday.

On the global front, investors await the delayed US Personal Consumption Expenditures Price Index data for September, due Friday. Traders will look to the Federal Open Market Committee's decision later in the month, with some saying that the MPC could avoid a rate cut this week, and take a decision in February only after the FOMC's outcome. Traders also await news on the next US Federal Reserve chair appointee, as current chair Powell's term ends in May. US President Donald Trump said he has decided on his pick for the next Fed chair, after making clear he expects the appointee to cut interest rates.

On Wednesday, the one-day call money rate may open below the RBI's repo rate due to surplus liquidity in the banking system. During the day, the one-day call money rate is seen in a range of 4.85-5.50%, dealers said.

GOVERNMENT BONDS

On Wednesday, bond prices may track the overnight movement of US Treasury yields. As the MPC kicks off its three-day meeting Wednesday, caution over the outcome may limit market volatility, dealers said.

After speculation that the central bank was buying gilts in the secondary market Tuesday, some traders may be disappointed to note that Clearing Corp. of India data showed 'Others' net bought less than INR 1 billion in the secondary market. The 'Others' category includes the RBI, insurance companies, and provident funds.

Traders will also track geopolitical developments, especially those related to the India-US trade deal. Most traders expect more clarity on this front soon. With no recent developments, dealers said a continued 50% tariff on India's exports to the US may prompt the RBI to ease monetary policy.

Movement of crude oil prices may also influence gilts. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.42-6.52% Wednesday. The yield on the 6.33%, 2035 bond is seen at 6.48-6.56%. The 6.48%, 2035 gilt Tuesday ended at INR 99.92, or 6.49% yield, while the 6.33%, 2035 bond ended at INR 98.70, or 6.52% yield.

OIS RATES

Swap rates may open steady Wednesday as the MPC begins its three-day meeting. After speculation of the RBI purchasing gilts on-screen Tuesday, traders may receive fixed-rate contracts on expectations of support from the central bank to pull down bond yields, dealers said. Traders have largely priced in a status quo on rates at the policy meeting after higher than expected GDP growth in the September quarter, but the five-year swap rate is unlikely to rise above the psychologically crucial 5.83% level on hopes of RBI support, dealers said.

"At 78-79 (5.78-5.79% on the five-year swap rate), a significant amount of stop-loss got triggered, but I think the next level is going to be this 83 (5.83%) from where it reversed last time," a dealer at a private sector bank said. "But I don't think that level will get breached before the policy."

Traders will also track geopolitical developments, especially those related to the India-US trade deal. Most traders expect more clarity on this front by the month-end. With no major breakthroughs so far, dealers said a continued 50% tariff on India's exports to the US may also prompt the RBI to ease monetary policy.

Traders will also track the overnight Mumbai Interbank Outright Rate and crude oil prices for cues, dealers said. The one-year swap rate is seen at 5.38-5.52% and the five-year rate is seen at 5.68-5.83%. On Tuesday, the one-year rate ended at 5.48% and the five-year rate ended at 5.80%.

CALL

On Wednesday, the one-day call money rate may open below the RBI's repo rate due to surplus liquidity in the banking system. Inflows from the government's routine expenditure Tuesday may also add to the liquidity surplus.

During the day, the one-day call money rate is seen in a range of 4.85-5.50%, dealers said. With over INR 1 trillion of liquidity already locked up in variable rate reverse repos, traders do not expect any further liquidity operations by the RBI until Thursday.

RBI AUCTION

--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 260.30 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 5.97 billion as coupon on state bonds 

--INR 30.98 billion as coupon on 7.09%, 2029 gilt

* Outflows

--INR 297.25 billion as payment for state bond auction

End

US$1 = INR 89.87

Reported by Aaryan Khanna

Edited by Ashish Shirke

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