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Informist, Thursday, Feb. 5, 2026

MUMBAI – On Friday, government bond prices and overnight indexed swap rates may open steady ahead of the decision of the Reserve Bank of India's Monetary Policy Committee, dealers said. RBI Governor Sanjay Malhotra will detail the decision at 1000 IST. The MPC is widely expected to maintain the repo rate at 5.25% and keep policy stance "neutral". Several participants see the terminal repo rate at 5.25%, with the MPC likely to opt for a prolonged pause.

Traders do not have firm expectations of the RBI's forecasts for GDP growth and inflation, since the Ministry of Statistics and Programme Implementation will release a new series for both data points in February. Some traders expect both data prints to be revised higher. There is likely to be a divergence in voting pattern among the members of the MPC, dealers said.

Traders will also track liquidity in the banking system, as the RBI's liquidity infusion measures this week are expected to add around INR 1.4 trillion to the liquidity surplus Friday. Any indications of liquidity infusion from the RBI are eyed. Traders expect the tone and commentary of the rate-setting panel, and of RBI Governor Sanjay Malhotra, to signal that the central bank will provide comfortable liquidity to the banking system. Based on feedback to the RBI, traders have varied expectations on what measures the central bank could introduce to provide liquidity. Several of them expect a relaxation in liquidity coverage ratio requirements, which could negatively impact bond prices, dealers said.

Traders expect the RBI to switch gilts it owns which mature in 2026-27 (Apr-Mar) with the Centre. The RBI is estimated to own INR 700 billion to INR 900 billion of gilts maturing in FY27. While most traders expect such a switch to be conducted in FY27, bond prices would surge if such an operation is conducted in Jan-Mar itself. Bonds and swaps may also track overnight movement of US Treasury yields, though the impact of the offshore cue may be limited as traders focus on the MPC outcome, dealers said.

Crude oil prices, rupee's movement against the dollar, and geopolitical tensions may influence bond prices and swap rates. The movement of the five-year OIS rate will also lend cues, with traders expecting it to fall to 6.00% by Friday. Traders await details of the India-US trade deal to gauge its impact on inflation and growth.

On Friday, the three-day call money rate may open above the RBI's SDF rate of 5.00% on demand for funds ahead of the weekend, but below the RBI's repo rate as liquidity, which is already comfortable, is set to increase. Dealers said movement of rates will depend on the RBI's Monetary Policy Committee outcome Friday and commentary. They expect the central bank to announce more measures to infuse liquidity, such as longer-tenure variable rate repo auctions and open market operation auctions, to support systemic liquidity. They also expect inflows from foreign investors to increase due to the announcement of the India-US and India-European Union trade deals.

Liquidity is expected to increase Friday, after inflows from the settlement of the INR-500-billion open market operation auction Thursday and the first-leg settlement of the $10 billion, three-year dollar-rupee buy-sell swap auction conducted Wednesday. Traders will watch out for any announcement of a variable rate reverse repo auction.

GOVERNMENT BONDS

Friday, bond prices may open steady ahead of the decision of the Monetary Policy Committee at 1000 IST, dealers said. Traders will watch out for purchases by foreign investors after their holdings through the fully accessible route hit a record high Thursday. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.60-6.80%. On Thursday, the bond ended at INR 98.81, or 6.65% yield.

OIS RATES

On Friday, OIS rates may open steady before RBI Governor Sanjay Malhotra details the outcome of the MPC meeting and other policy measures at 1000 IST. The policy decisions will lend further cues to swap rates, dealers said. The commentary on liquidity and the market's expectations on the Mumbai Interbank Offered Rate fixing following the policy outcome will lend direction to the OIS rates, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.00-6.20%. Thursday, the one-year swap rate ended at 5.51% and the five-year swap rate ended at 6.09%.

CALL

On Friday, the three-day call money rate may open above the RBI's SDF rate of 5.00% on demand for funds ahead of the weekend, but below the RBI's repo rate as liquidity—which is already comfortable—is set to increase. Dealers said movement of rates will depend on the RBI's Monetary Policy Committee outcome Friday and commentary. They expect the central bank to announce more measures to infuse liquidity, such as longer-tenure variable rate repo auctions and open market operation auctions, to support systemic liquidity. They also expect inflows from foreign investors to increase due to the announcement of the India-US and India-European Union trade deals.

Liquidity is expected to increase Friday after inflows from the settlement of the INR-500-billion open market operation auction Thursday and the first-leg settlement of the $10 billion, three-year dollar-rupee buy-sell swap auction conducted Wednesday. Traders will watch out for any announcement of a variable rate reverse repo auction. The call rate is likely to be in the 4.50-5.25% range during the day, dealers said. The one-day call rate closed at 5.05% Thursday.

RBI AUCTION

--Govt to auction two gilts worth INR 290 billion

LIQUIDITY

Total net inflows of INR 699.28 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 126.88 billion as redemption of INR 91-day Treasury bills

--INR 17.95 billion as coupon on state bonds

--INR 54.45 billion as coupon on 7.26%, 2033 bond

--INR 500.00 billion as payment from RBI gilt buy at OMO auction Thursday

* Outflows

--Nil

End

US$1 = INR 90.3550

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

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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