India Money Market Outlook
Gilts, OIS to track West Asia developments, rupee
This story was originally published at 22:43 IST on 5 May 2026
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MUMBAI – Government bond prices and OIS traders will track crude oil prices and developments in the war in West Asia, now in its third month, dealers said. The overnight movement in US yields will also lend cues, they said. A sharp rise in crude oil prices to above $125 per barrel could push the 10-year benchmark bond yield to 7.10%, dealers said. Traders will also track the movement of the rupee, they said.
On the domestic front, traders are worried that the Centre might hike petrol and diesel prices to support oil marketing companies, which are losing money on retail sales after crude prices jumped because of the West Asia conflict. RBI's Monetary Policy Committee external member Ram Singh also said Tuesday that the government should hike retail fuel prices. If pump prices go up, CPI inflation could climb toward the top of the RBI's 2-6% tolerance band later in 2026-27 (Apr-Mar), dealers said. Swap rates have already factored in multiple repo rate hikes in India in 2026-27 (Apr-Mar) and beyond.
GOVERNMENT BONDS
On Wednesday, bond prices will track developments in the West Asia war and their impact on Brent crude oil prices, dealers said. With crude oil prices above $110 per barrel, dealers now expect the yield on the 10-year benchmark to remain above 7.00%.
The yield on the 10-year benchmark is seen opening at 7.02%, dealers said. It is expected to rise to 7.05% if the US-Iran war escalates and crude prices shoot up to $115 per barrel. The yield on the 6.48%, 2035 bond is seen in a range of 6.98-7.05% Wednesday. On Tuesday, the 10-year benchmark 6.48%, 2035 government bond ended at INR 96.33, slightly higher than INR 96.32 Monday. The yield on the bond ended at 7.0184%, above the psychologically crucial 7.00% mark for the third consecutive session, but marginally lower than 7.0194% Monday.
OIS
OIS traders will track crude oil prices and developments in the war in West Asia, now in its third month, dealers said. The overnight movement in US yields will also lend cues, they said.
Traders will also track the liquidity surplus, which has fallen considerably from its high of INR 5.50 trillion in April. The net liquidity absorbed by the RBI – an indication of surplus liquidity in the banking system – was INR 2.57 trillion Monday, data showed. On Wednesday, the one-year swap rate is seen at 5.90-6.15% and the five-year swap at 6.40-6.75%. On Tuesday, the one-year swap rate ended at 6.06%, unchanged from Monday, after retreating from a high of 6.10% during the day. The five-year swap rate ended at 6.67%, the same as Monday, after hitting an intraday high of 6.73%.
CALL
Wednesday, the one-day interbank call money rate is likely to open at 5.15-5.25%. Dealers expect the call rate to be around 4.80-5.25% during the day, whereas, the tri-party repo rate is expected to be in the range of 4.90–5.10% on the back of ample surplus liquidity in the banking system.
The weighted average call rate will be in the range of 5.15-5.20% and that in the tri-party repo market is likely to be in the band of 5.00-5.10% Wednesday, dealers said. Tuesday, the one-day call money rate ended at 4.75%.
RBI AUCTION
--RBI to auction INR 240 bln of T-bills Wednesday
LIQUIDITY
Total net outflows of INR 113.65 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 18.71 billion as coupon on state bonds
--INR 43.64 billion as coupon on 7.46%, 2073 gilt
--INR 10.00 billion on redemption of state bonds
* Outflows
-INR 186 billion as payment for state bonds
End
US$1 = INR 95.28
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Kabir Sharma
Edited by Deepshikha Bhardwaj
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