India Money Market Outlook
Two-day call rate seen above repo rate Saturday
This story was originally published at 21:15 IST on 19 December 2025
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NEW DELHI – The two-day call money rate may open above the Reserve Bank of India's repo rate of 5.25% Saturday as liquidity is expected to remain in deficit and due to pressure from outflows for goods and services tax payments.
Trade volume is likely to be low, as is usual on Saturdays, as banks met their cash requirement by Friday. During the day, the two-day call money rate is seen in a range of 4.80-5.30%, dealers said. The three-day call rate ended at 5.00% Friday.
Government bonds and overnight indexed swap rates are not traded Saturdays.
GOVERNMENT BONDS
On Monday, government bonds are expected to track the overnight movement of US Treasury yields. The movement of OIS and rupee in early trade will lend cues to bond traders, dealers said.
Traders will monitor developments around the India-US trade deal and will also track crude oil prices. Some traders are hopeful that the likely inclusion of Indian bonds in the Bloomberg's Global Aggregate Index in January will lift bond prices next week, dealers said.
The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.54-6.63% Monday. The yield on the 6.33%, 2035 bond is seen at 6.56-6.65%. On Friday, the 6.48%, 2035 bond ended at INR 99.12, or 6.60% yield, while the 6.33%, 2035 gilt ended at INR 98.04, or 6.61% yield.
OIS RATES
On Monday, swaps may track movement of US Treasury notes and gilt yields due to lack of other significant triggers next week. Traders will also assess the minutes of the RBI Monetary Policy Committee's December meeting, released post-market hours Friday. Swaps may also track the rupee's movement against the dollar and its impact on forward premiums.
As the year nears its end and the Christmas holiday season begins, trade volumes may remain low, with several traders likely on leave, dealers said. Offshore activity will decline during the Christmas week and heading into the New Year as foreign banks and portfolio investors close their accounts at the year-end or go on holiday, dealers said.
This month, some offshore investors have taken calls to pay fixed-rate contracts in markets across Asia amid current geopolitical and monetary policy conditions, dealers said. However, in January, foreign investors and banks may be more active and look to receive fixed-rate contracts. Bond yields may also fall next month, as traders expect the RBI to announce additional open market purchases of gilts. Traders also expect Indian government bonds to be included in Bloomberg's flagship Global Aggregate Index in September, with the announcement expected in January. Market participants expect inflows from foreign portfolio investors to begin in the new year and to total $25 billion in 2026.
After India's CPI for November was essentially a "non-event" for swaps, traders are now focussed on the CPI prints January onwards, with the RBI projecting retail inflation to average 2.9% in the March quarter. India's advance estimate on GDP for 2025-26 (Apr-Mar) in the first week of January may also be crucial for traders to take bets on further repo rate cuts by the Monetary Policy Committee, dealers said.
Traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues. The one-year swap rate is seen at 5.38-5.60% and the five-year swap rate is seen at 5.78-6.02%. The one-year rate Friday ended at 5.48% and the five-year rate closed at 5.95%.
RBI AUCTION
--Nil
LIQUIDITY
Total net inflows of INR 52.03 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 11.40 billion as coupon on state bonds
--INR 40.63 billion as coupon on 7.38%, 2027 gilt
* Outflows
--Nil
End
Reported by Shubham Rana
Edited by Ashish Shirke
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