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Informist, Wednesday, Dec. 24, 2025

MUMBAI – Money markets are shut Thursday for Christmas. Prices of gilts may stay up while swap rates open steady Friday after the Reserve Bank of India Tuesday announced gilt purchases of INR 2 trillion in open market operations across December and January and a three-year $10 billion dollar-rupee buy-sell auction on Jan. 13. These will bring down government bond yields and dollar-rupee forward premia, easing OIS rates as well, dealers said. Gilt prices may also track the movement in US Treasury yields and movement in the rupee in early trade.

India's advance estimate on GDP for the financial year 2025-26 (Apr-Mar) in the first week of January may be crucial for traders to take bets on further repo rate cuts by the RBI's Monetary Policy Committee, though there are no rate-cut bets for February currently reflected in OIS rates, dealers said. After India's CPI for November was essentially a "non-event" for swaps, traders are focused on the CPI prints from January onwards, with the RBI projecting retail inflation to average 2.9% in the March quarter. Traders will also monitor developments around the India-US trade deal and track crude oil prices for cues.

The three-day call money rate may open below the RBI's repo rate of 5.25% Friday as there are no major outflows slated for the day. The three-day call money rate is expected to move in the range of 4.50-5.65%, dealers said.

GOVERNMENT BONDS

Money markets are shut Thursday for Christmas. Friday, gilts are likely to open higher, continuing the sharp rise in prices seen Wednesday after the RBI Tuesday announced INR 2-trillion purchases of gilts in open market operations across December and January. Later in the day, traders will turn their attention to the outcome of the weekly gilts auction, when the government sells INR 90 billion worth of 5.91%, 2028 gilts, INR 110 billion worth of 6.28%, 2032 gilts, and INR 120 billion worth of 7.24%, 2055 gilts. Demand at the auction is expected to be firm following the rise in bond prices Wednesday after the announcement of a larger-than-expected OMO auction Monday, dealers said.

The RBI will buy INR 500 billion of seven gilts via OMO auction Monday. It will purchase the 6.67%, 2035 gilt, the 7.18%, 2037 gilt, the 7.26%, 2033 gilt, the 6.79%, 2034 gilt, the 6.79%, 2029 gilt, the 7.61%, 2030 gilt, and the 7.30%, 2053 bond at the auction. It will buy gilts worth INR 500 billion on Jan. 5, Jan. 12, and Jan. 22 as well.

Some traders are hopeful the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will push bond prices higher, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.53-6.60%. Wednesday, it had ended at INR 99.56, or 6.54% yield.

OIS RATES

OIS rates may open steady Friday after the volatility of the past few sessions, with traders likely to continue receiving fixed rates if gilt yields and dollar-rupee forward premia fall, dealers said. Trading activity is likely to be muted as several traders are on leave in the Christmas week and ahead of the New Year. Furthermore, foreign banks and primary dealerships, as also traders offshore, have limited trading activity with the approach of the year-end, dealers said.

Market participants expect inflows into debt instruments from foreign portfolio investors to begin in the new year and to top $25 billion in 2026 as India's fully accessible route bonds get added to Bloomberg's flagship Global Aggregate Index. This may pull swap rates down, dealers said.

The one-year swap rate is seen at 5.40-5.52% and the five-year swap rate is seen at 5.85-6.00%. The one-year rate ended at 5.46% Wednesday. The five-year rate closed at 5.91%.

CALL

On Friday, the three-day call money rate may open below the RBI's repo rate of 5.25% as no major outflows are expected. During the day, the three-day call money rate is expected to move in the range of 4.50-5.65%, dealers said.

The RBI will hold a four-day variable rate repo auction for INR 1.75 trillion from 0930 IST to 1000 IST Fri, the central bank said Wednesday after market hours. The two-day call rate ended at 4.80% Wednesday.

RBI AUCTION

--Govt to auction three gilts worth INR 320 billion Friday

LIQUIDITY

Total net inflow of INR 121.55 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 182.80 billion as redemption of 91-day T-bill Thursday

--INR 50.00 billion as redemption of 182-day T-bill Thursday

--INR 12.08 billion as redemption of state bonds Thursday

--INR 76.63 billion as redemption of 364-day T-bill Friday

--INR 32.80 billion as coupon on state bonds Friday

--INR 40.68 billion as coupon on 6.79%, 2029 gilt Friday

* Outflows

--INR 153.44 billion as payment for 91-day T-bill

--INR 60.00 billion as payment for 182-day T-bill

--INR 60.00 billion as payment for 364-day T-bill

--INR 249.69 billion as payment of 11-day variable rate repo

--INR 773.79 billion as payment of 10-day variable rate repo

--INR 873.47 billion as payment of two-day variable rate repo 

End

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

Reported by Janwee Prajapati

Edited by Rajeev Pai

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