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Informist, Thursday, Apr. 2, 2026

NEW DELHI – The two-day call money rate is likely to open below the Reserve Bank of India's repo rate of 5.25% on Saturday as banks have met most of their borrowing requirements on Thursday, dealers said. As is usually the case on Saturdays, trade volume is likely to be muted.

The two-day call money rate is seen in the 4.65–5.25% range during the day. Financial markets are shut Friday for Good Friday. On Thursday, the four-day call rate ended at 5.00%. Outflows for excise duty are scheduled for next week, which could drain the liquidity by around INR 600 billion by Wednesday. The Reserve Bank of India's Monetary Policy Committee's rate decision and commentary on Wednesday will also be closely watched, dealers said.

Government bond prices may open steady Monday on caution as the RBI's three-day MPC meeting begins. Traders expect volumes to be muted before the rate decision on Wednesday, with a minority of the market even expecting a hike in the policy repo rate from the current 5.25%.

Gilt prices and overnight indexed swap rates may also take cues from developments in the war in West Asia over the long weekend, dealers said. The movement in Brent crude prices and US Treasury yields have been closely tracked by traders in both markets. The outlook on US interest rates in 2026 after non-farm payrolls data for March is released on Friday may also change traders' bets on domestic rate movements, dealers said.

Even with the geopolitical events in focus over the past month, the reaction of the domestic rate-setting panel will now be a bigger trigger for gilt prices and trade volumes may be low till the rate decision on Wednesday, dealers said. The commentary of the committee and of RBI members on both growth and inflation will be key, especially for rate-sensitive short-term bonds. A minority of market participants expects the MPC to hike the repo rate by 25 bps, both in the face of inflationary pressures and to protect the rupee, which fell over 4% in March.

Most traders expect a "hawkish" pause on the repo rate, with commentary likely to set the stage for rate hikes. The RBI is likely to peg its inflation forecast for FY27 at around 4.60% , dealers said. According to an Informist Poll, in the worst-case scenario, where the military conflict in West Asia drags on for the rest of 2026, economists expect the Monetary Policy Committee to raise the repo rate by up to 50 bps from the current 5.25% in 2026. The one-year OIS rate is pricing in 100 bps of rate hikes over the next 12 months, dealers said.

GOVERNMENT BONDS

On Monday, bonds may open steady as the three-day Monetary Policy Committee meeting begins. Gilt yields may also track the movement of Brent crude oil futures and developments in West Asia over the long weekend, dealers said.

Due to the rate cues coming from the war, and after the Centre published its borrowing calendar for Apr-Sept, traders expect the bond yield curve to "bear-flatten", they said. Foreign portfolio investors may continue selling fully accessible route bonds, pulling down prices. 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.95-7.20% Monday. On Thursday, the bond ended at INR 95.55 or 7.1329% yield, with the 10-year benchmark yield ending at its highest closing level since May 2024.

OIS RATES

On Monday, swaps will track Brent crude oil prices and the movement in US Treasury yields over the weekend, dealers said. Traders expect swap rates to open steady if there is no escalation in the ongoing war in West Asia, they said. The movement in government bond yields may also lend a direction after the 10-year benchmark gilt yield ended at 7.1329%, the highest closing level since May 8, 2024.

If offshore traders continue paying fixed rates, the five-year OIS rate is on track to test 7.00%, its highest level since October 2022, dealers said. If crude oil price drops to near $80 per barrel due to an end to the war in West Asia, the five-year swap could ease to as low as 6.25% as a fall triggers stop-losses on paid fixed-rate positions. Some traders expect rates to remain above pre-war levels even if oil prices fall, dealers said.

The one-year swap rate is seen at 6.00-6.45% and the five-year at 6.45-7.00% Monday. On Thursday, the one-year swap rate ended at 6.37%, an over 14-month high. The five-year swap rate ended at 6.87%, its highest closing level since October 2023.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of INR 106.64 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 15.20 billion as coupon on state bonds Friday

--INR 60.00 billion as redemption of 182-day Treasury bill Friday

--INR 20.77 billion as coupon on state bonds Saturday

--INR 10.67 billion as coupon on floating rate bond 2028 Saturday

* Outflows

--Nil

End

US$1 = INR 93.10

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

Reported by Aaryan Khanna

Edited by Tanima Banerjee

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