India Money Market Outlook
Two-day call seen opening near repo rate Sat
This story was originally published at 22:47 IST on 29 May 2026
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MUMBAI – The two-day interbank call money rate is likely to open near the Reserve Bank of India's repo rate of 5.25% Saturday due to a low liquidity surplus. Trade activity is likely to be muted, as is usually the case on Saturdays, dealers said. Government bonds and overnight indexed swap rates are not traded Saturday.
The three-day call rate ended at 5.55% Friday. Dealers expect the two-day call rate to be in the 4.60–5.40% range on Saturday, while the tri-party repo rate is expected to be in the range of 5.00–5.25%. The weighted average call rate is expected to be in the range of 5.15-5.30%, they said.
The settlement of the RBI's dollar-rupee swap auction Friday and the government's month-end spending are expected to increase the liquidity surplus in the banking system by next week. However, the call money rate may still remain above the policy repo rate of 5.25% Monday, dealers said.
GOVERNMENT BONDS
Monday, bond prices will track movements in Brent crude oil prices and developments in the West Asia conflict, dealers said. The yield on the benchmark 10-year 6.48%, 2035 bond is seen in the 6.95-7.05% range.
A finalised peace agreement between the US and Iran could pull the benchmark yield closer to the 6.85% level, dealers said. Traders widely expect the benchmark yield to remain below 7.05% unless there is a major setback in efforts to end the conflict in West Asia.
The 10-year benchmark 6.48%, 2035 bond ended at INR 96.44, or 7.0037%, Friday. The newer 10-year 6.94%, 2036 bond ended at INR 99.74, or 6.9759% yield.
Buying momentum may remain slightly muted next week ahead of the RBI Monetary Policy Committee decision on Jun. 5 and the expected supply of the 2036 bond next week. The government is scheduled to sell INR 340 billion of a 10-year bond next week at auction. It will also release GDP data for the March quarter on Jun. 5.
OIS RATES
On Monday, swap rates will track crude oil prices and traders will assess developments over the weekend to take positions ahead of the RBI's Monetary Policy Committee meeting on Jun. 5, dealers said. Most traders are cautious ahead of the policy decision, due to uncertainty on when the rate-setting panel will begin hiking the repo rate due to increased crude oil prices, dealers said.
Traders expect the rate-setting panel to opt for a "hawkish hold" on the repo rate next week. However, due to reports of a likely peace deal between the US and Iran, traders are unsure of how restrictive the tone of the committee can get. Traders expect the RBI to cut its GDP growth forecast for the financial year 2026-27 (Apr-Mar) by 20-30 bps while the FY27 CPI inflation forecast could be raised to above 5% from 4.6% currently, dealers said. The one-month swap rate is pricing in less than 25 bps of a rate hike in June while the three-month swap rate is pricing in around one rate hike of 25 bps, dealers said.
Dealers hope the central bank will announce measures to curb the rupee's depreciation, weakening the case for a policy repo rate hike. Some dealers expect more dollar-rupee buy-sell swap auctions to be conducted after the RBI held one Tuesday.
Friday, the one-year swap rate was at 6.10% and five-year OIS rate ended at 6.61%. Indian financial markets were shut Thursday for Id-ul-Zuha.
Movement in the rupee and overnight money market rates will also influence swaps. Monday, the one-year swap rate is seen at 5.90-6.40% and the five-year at 6.50-6.90%.
RBI AUCTION
--Nil
LIQUIDITY
Total net inflows of INR 8.75 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 8.75 billion as coupon on state bonds
* Outflows
--Nil
End
US$1 = INR 95.00
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Meera Nair
Edited by Deepshikha Bhardwaj
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