India Money Market Outlook
Two-day call seen below repo amid low volume Sat
This story was originally published at 22:10 IST on 30 January 2026
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MUMBAI – On Saturday, the two-day call money rate may open below the Reserve Bank of India's repo rate of 5.25% as the Centre's month-end expenditure is likely to aid liquidity, after two 90-day variable rate repo auctions conducted Friday, dealers said. As is usually seen on Saturdays, trade volumes may be low. During the day, the call money rate is expected to move in a range of 4.90-5.10%, dealers said. On Friday, the three-day call money rate ended at 4.80%.
Government bond prices and overnight indexed swap rates are not traded Saturdays and Sundays.
GOVERNMENT BONDS
Government bonds are not traded on Saturday and Sunday. On Monday, bond prices will take cues from the Centre's market borrowing figures, which will be presented in the Union Budget for 2026-27 (Apr-Mar) on Sunday, dealers said. However, bond prices may rise at open after weekly statistical data released post-market hours showed that the RBI purchased gilts worth INR 126.55 billion outside open market operation auctions in the week ended Jan. 23. Moreover, fulfilling the hopes of traders, the RBI selected the erstwhile 10-year benchmark 6.33%, 2035 bond to buy, along with six other gilts, at the INR-500-billion OMO auction Thursday.
Post market hours, the RBI said it will buy seven gilts for INR 500 billion at the OMO auction Thursday; namely the 6.75%, 2029; the 6.28%, 2032; the 7.18%, 2033; the 6.79%, 2034; the 6.33%, 2035; the 6.92%, 2039; and the 7.09%, 2054 gilts. The erstwhile 10-year benchmark 6.33%, 2035 bond outperformed the 10-year benchmark bond Friday, even as its trade volume was low, as traders had expected its inclusion in the INR-500-billion auction Thursday. Some market participants had also speculated that the RBI would buy the 7.18%, 2033 bond at the auction.
Traders are keenly tracking the Union Budget for FY27. The Centre's gross borrowing aim is expected to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion in FY26. A number higher than expected may weigh on bond prices, while an increase in funding through Treasury bills or small savings and a gross borrowing number below INR 16 trillion would boost bond prices, dealers said. If the actual amount is significantly higher than INR 17 trillion, the yield on the 10-year benchmark bond will likely rise till 6.80%, dealers said.
Traders will look out for confirmation of the speculated gilt switch between the RBI and the Centre, on hopes that it will reduce the Centre's gross borrowing for FY27. Any development on the India-US trade deal frojt may also influence bond prices. Significant movements in the five-year overnight indexed swap rate, the rupee, and crude oil prices may also lend cues, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.60-6.77%. On Friday, the bond ended at INR 98.47, or 6.70% yield.
OIS RATES
Swaps are not traded Saturdays and Sundays. On Monday, overnight indexed swap rates will track the movement in bond yields after the Union Budget for FY27 is presented Sunday. Traders await the Centre's market borrowing figures, which will be detailed in the Union Budget. Albeit, swap rates may fall at open Monday after weekly statistical data released post-market hours showed that the RBI purchased gilts worth INR 126.55 billion outside open market operation auctions in the week ended Jan. 23.
The Centre's gross borrowing aim is expected to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion in FY26. A higher-than-expected number may weigh on bond prices, while an increase in funding through Treasury bills or small savings and a gross borrowing number below INR 16 trillion would boost bond prices, dealers said. If the actual amount is significantly higher than INR 17 trillion, the yield on the 10-year benchmark bond will likely rise till 6.80%, dealers said.
The movement of swaps will hinge on offshore flows, as offshore traders continue to pay fixed rates, dealers said. After the Budget, traders await the outcome of the RBI's Monetary Policy Committee meeting next week, even though a rate cut is not expected, dealers said. Swap rates are currently pricing in rate hikes.
Traders will also monitor developments related to the India-US trade negotiations, crude oil prices, and geopolitics. The one-year swap rate is seen at 5.52-5.68% and the five-year at 6.03-6.25%. Friday, the one-year swap rate ended at 5.56% and the five-year swap rate ended at 6.16%.
RBI AUCTION
--Nil
LIQUIDITY
Total net inflows of INR 31.43 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 31.43 billion as coupon on state bonds
* Outflows
--Nil
End
US$1 = INR 91.9825
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Cassandra Carvalho
Edited by Tanima Banerjee
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