More Stories

Informist, Monday, Jun. 1, 2026

MUMBAI – Government bond prices are likely to remain steady Tuesday as traders stay cautious ahead of the Reserve Bank of India's three-day Monetary Policy Committee meeting, starting Wednesday, dealers said. While developments in the Gulf region, particularly renewed hostilities involving the US, Iran, and Israel, may continue to influence market sentiment, dealers expect domestic policy cues to dominate trading activity in the run-up to Friday's policy decision. Swap rates, however, are likely to remain sensitive to movements in crude oil prices amid the geopolitical uncertainty, they said.

Traders believe global factors may be of less importance for the gilt market this week. Traders may begin to look through the volatility in crude oil prices this week as it may not immediately make a case for rate changes. However, dealers said a breakthrough in US-Iran peace negotiations could pull the 10-year benchmark gilt yield down to 6.90%, while further escalation of hostilities could push it up to 7.10%.

Traders expect the rate-setting panel to opt for a "hawkish hold" on the repo rate Friday. At least one of the three external MPC members could vote for a rate hike, dealers said. A few traders expect a change of stance to 'withdrawal of accommodation' from neutral. Traders expect the RBI to cut its GDP growth forecast for the financial year 2026-27 (Apr-Mar) by 20-30 basis points while the estimate for FY27 CPI inflation could be raised to above 5% from 4.6% currently, dealers said. If the inflation forecast is raised by 50 bps, the rate hike cycle could be quicker, 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. 

Nineteen of the 24 economists and market participants polled by Informist said the Monetary Policy Committee will hold the repo rate at 5.25% at the end of its three-day meeting Friday.

GOVERNMENT BONDS

Government bond prices are seen steady Tuesday on caution before the three-day MPC meeting that starts Wednesday. Traders widely expect the rate-setting panel to keep status quo on the repo rate in June. Rate hikes are expected to begin in August or October, most dealers said.

The 10-year benchmark 6.48%, 2035 bond ended at INR 96.35, or 7.0181% Friday. The newer 6.94%, 2036 bond ended at INR 99.53 or 7.0052% yield. 

RBI Governor Sanjay Malhotra's commentary is expected to set the stage for monetary policy tightening as CPI inflation is seen averaging 5.0% in FY27, above the central bank's 4.6% forecast in April and its 4% retail inflation target. The RBI is also expected to trim its FY27 GDP growth estimate to around 6.5% from 6.9% in April. The central bank is likely to focus on keeping inflationary expectations in check for the next few months rather than prioritising growth, dealers said. 

The result of the state bond auction at 1030-1130 IST may also lend cues Tuesday. Eight states will raise INR 241 billion through bonds at the auction, similar to the amount indicated in the Apr-Jun calendar. Demand for fresh supply may be diminished by the uncertainty on the global and local fronts, though improved liquidity conditions might increase banks' appetite for bonds, dealers said. 

OIS RATES

On Tuesday, swap rates will track crude oil prices as the US, Iran and Israel have recommenced strikes in the Gulf region. However, traders will refrain from taking fresh positions ahead of the decision of the RBI's Monetary Policy Committee meeting on Friday, 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.

Dealers hope the central bank will announce measures to curb the rupee's depreciation. Some dealers expect more dollar-rupee buy-sell swap auctions to be conducted after the RBI held one last week. Traders have mixed views on liquidity, with some saying that liquidity will be comfortable once the RBI's transfer of surplus to the Centre reflects in the banking system. Others expect the overnight Mumbai Interbank Outright Rate to remain elevated, as the central bank is unlikely to infuse durable liquidity in the system to avoid a rise in inflation, dealers said. 

Movement in the rupee and overnight money market rates will also influence swaps. On Tuesday, the one-year swap rate is seen at 5.90-6.40% and the five-year at 6.50-6.90%. On Monday, the one-year swap rate ended at 6.12%, up from 6.10% Friday. The five-year OIS rate ended at 6.64%, up from 6.61% Friday. 

CALL

On Tuesday, the one-day day interbank call money rate is likely to open near the RBI's repo rate of 5.25%, but not above, as liquidity surplus in the banking system is expected to be comfortable, dealers said.

Additionally, the RBI post market hours said it would conduct a VRR auction of INR 750 billion for three days Tuesday. Dealers expect the call rate to be in the 4.60–5.35% range on Tuesday, while the tri-party repo rate is expected to be in the range of 4.90–5.25%. The weighted average call rate is expected to be in the range of 5.20-5.30%, they said.

The one-day call rate ended at 4.85% Monday, the same as Saturday's close for two-day loans. The weighted average call rate was 5.30%, up sharply from 4.94% Saturday. 

RBI AUCTION

--8 states to raise INR 241 billion via bond sale on Tuesday

LIQUIDITY

Total net inflows of INR 56.62 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 12.88 billion as coupon on state bonds

--INR 40.34 billion as coupon on 8.60%, 2028 gilt

--INR 3.40 billion as coupon on 6.79%, 2034 green bond

* Outflows

--NIL

End

US$1 = INR 94.99

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

Reported by Meera Nair

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2026. All rights reserved.