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Informist, Wednesday, Dec. 3, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may open steady Thursday due to caution ahead of the Reserve Bank of India's Monetary Policy Committee meeting decision Friday. Traders are divided on their views. Some traders expect the MPC to cut the repo rate by 25 basis points to support growth after the 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 growth was at a six-quarter high of 8.2% in the September quarter.

Bond prices may rise 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.

The overnight movement in US Treasury yields may also lend cues, though the impact of the global cue may be limited ahead of the key domestic event, dealers said. Investors also await the delayed US Personal Consumption Expenditures Price Index data for September Friday. Traders will look to the US Federal Open Market Committee's policy decision next week, with some saying the RBI may avoid a rate cut this week and decide on it in February after seeing the FOMC outcome. Traders also await news on the next US Federal Reserve chair appointee, as current Chair Jerome Powell's term ends in May. US President Donald Trump has said he has decided on his pick for the seat and made it clear he expects the new appointee to cut interest rates.

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 breakthrough yet, dealers said the continued 50% tariff on India's exports to the US could prompt the RBI to ease monetary policy.

The rupee's movement against the dollar is also being closely tracked. Some traders fear the RBI may avoid cutting rates amid the rupee's recent weakness. The domestic currency fell to a record low of 90.29 a dollar Wednesday before closing at 90.19 a dollar, also a record. Movement in crude oil prices may also lend cues. 

On Thursday, the one-day call money rate may open near the RBI's repo rate ahead of the variable rate reverse repo auction. However, rates may ease later in the day due to surplus liquidity in the banking system and lack of major outflows.

The RBI will Thursday conduct an overnight VRRR auction for INR 750 billion between 0930 IST and 1000 IST. The redemption of the RBI's two-day VRRR auction of INR 500.17 billion is due Thursday. During the day, the one-day call money rate is seen in a range of 4.85-5.50%, dealers said.

GOVERNMENT BONDS

On Thursday, bond prices may track overnight movements in US Treasury yields at market open. As the MPC kicked off its three-day meeting Wednesday, caution over the outcome may cap market volatility, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.42-6.54% Thursday. The yield on the 6.33%, 2035 bond is seen at 6.48-6.56%. The 6.48%, 2035 gilt Wednesday ended at INR 99.77, or 6.51% yield, while the 6.33%, 2035 bond ended at INR 98.56, or 6.54% yield.

OIS RATES

Swap rates are likely to open steady Thursday on caution ahead of the key Monetary Policy Committee outcome Friday. Traders have largely priced in 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 hope of RBI support, dealers said.

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 Wednesday, the one-year rate ended at 5.48% and the five-year rate ended at 5.82%.

CALL

On Thursday, the one-day call money rate may open near the RBI's repo rate ahead of the variable rate reverse repo auction. However, rates may ease later in the day due to surplus liquidity in the banking system and lack of major outflows.

The RBI will Thursday conduct an overnight VRRR auction for INR 750 billion between 0930 IST and 1000 IST. The redemption of the RBI's two-day VRRR auction of INR 500.17 billion is due Thursday. During the day, the one-day call money rate is seen in the range of 4.85-5.50%, dealers said. The one-day call money rate ended at 4.95% Wednesday.

RBI AUCTION

--RBI to hold overnight VRRR auction for INR 750 bln 0930-1000 IST 

LIQUIDITY

Total net outflows of INR 54.39 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 115.00 billion as redemption of 91-day Treasury bills

--INR 90.00 billion as redemption of 182-day T-bills

--INR 61.05 billion as redemption of 364-day T-bills

--INR 29.32 billion as coupon on state bonds 

--INR 3.37 billion as coupon on 6.13%, 2028 gilt

--INR 500.17 billion as redemption of two-day variable rate reverse repo tender

* Outflows

--INR 200.00 billion as payment for 91-day T-bills

--INR 85.14 billion as payment for 182-day T-bills

--INR 68.00 billion as payment for 364-day T-bills

End

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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