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Informist, Friday, Dec. 5, 2025

MUMBAI – The two-day call money rate may open below the Reserve Bank of India's repo rate of 5.25% Saturday due to a comfortable liqudity surplus. Trade volume is likely to be low, as is usual on Saturdays, as banks have met their cash requirement by Friday. Government bonds and overnight indexed swap rates are not traded Saturdays. 

During the day, the two-day call money rate is seen in a range of 4.50-5.25%, dealers said. Traders expect liquidity conditions to remain comfortable next week despite excise duty and tax deducted at source payments, with the first tranche of the RBI's open market operation to buy bonds scheduled for Thursday.

GOVERNMENT BONDS

On Monday, gilts will open tracking overnight movement in US Treasury yields and the rupee's movement early in the day. On the global front, investors await the release of the delayed US Personal Consumption Expenditures Price Index data for September, due Friday. Traders will watch out for the US Federal Open Market Committee's rate decision. Fed fund futures are pricing in 87% chance of a 25-bps cut in the federal funds rate, dealers said.

Traders also await news on the appointment of the next US Fed chair, as the current Chair Jerome 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 the domestic front, traders have no cues on rates until CPI inflation data for November, due next week. However, traders are more focussed on CPI prints January onwards, since inflation is seen rising in the near term. Chances of another cut in the repo rate are seen unlikely as of Friday, after the RBI delivered both a rate cut and measures to infuse liquidity, dealers said. 

The RBI will purchase INR 500 billion worth of seven government bonds across tenures through an open market operation auction Thursday, it said in a press release Friday after market hours. The RBI will buy seven gilts--the 6.75%, 2029 gilt; the 7.02%, 2031 gilt; the 7.26%, 2032 gilt; the 6.79%, 2034 gilt; the 7.54%, 2036 gilt; the 6.92%, 2039 gilt; and the 6.67%, 2050 gilt. Traders expect aggressive participation for the bonds across tenures. However, the 6.67%, 2050 paper will likely be tendered at a lower price, dealers said.

"...There are chances of a tail (traders offering the bond at a lower price) in the 2050 bond because not much of this bond must be in-the-money," a dealer at a private sector bank said.

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 recent developments, dealers said a continued 50% tariff on India's exports to the US may prompt the RBI to ease monetary policy. Traders may also track Indian Prime Minister Narendra Modi's two-day summit with Russian President Vladimir Putin. Closer ties with Russia could push an India-US trade deal to the backseat, dealers said.

Movement of crude oil prices may also influence gilts. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.40-6.56% Monday. The yield on the 6.33%, 2035 bond is seen at 6.40-6.60%. On Friday, the 6.48%, 2035 bond ended at INR 99.89 or 6.49% yield, while the 6.33%, 2035 bond ended at INR 98.70 billion or 6.52% yield. 

OIS RATES

On Monday, swap rates will open tracking overnight movement in US Treasury yields and the rupee's movement early in the day. On the global front, investors await the release of the delayed US Personal Consumption Expenditures Price Index data for September, due Friday. Traders will watch out for the US Federal Open Market Committee's rate decision. Fed fund futures are pricing in an 87% chance of a 25-bps cut in the federal funds rate, dealers said.

Traders also await news on the appointment of the next US Fed chair as the current Chair Jerome Powell's term ends in May. US President Donald Trump said he has decided on his pick for the next Fed chair after making it clear he expects the appointee to cut interest rates.

On the domestic front, traders have no cues on rates until CPI inflation data for November is released next week. However, traders are more focussed on CPI prints January onwards, since inflation is seen rising in the near term. Chances of another cut in the repo rate are unlikely as of Friday, after the RBI delivered both a rate cut and measures to infuse liquidity, dealers said. 

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 recent developments, dealers said a continued 50% tariff on India's exports to the US may increase chances of easing monetary policy. Traders may also track Indian Prime Minister Narendra Modi's two-day summit with Russian President Vladimir Putin. Closer ties with Russia could push an India-US trade deal to the backseat, dealers said.

Movement of crude oil prices may also influence swaps. The one-year swap rate is seen at 5.38-5.50% and the five-year rate is seen at 5.68-5.85%. On Friday, the one-year rate ended at 5.43% and the five-year rate ended at 5.80%. 

RBI AUCTION

--Nil

LIQUIDITY

Total net inflows of INR 14.09 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 14.09 billion as coupon on state bonds 

* Outflows

--Nil

End

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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