India Money Market Outlook
Two-day call seen opening below repo rate Sat
This story was originally published at 21:21 IST on 5 June 2026
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MUMBAI – The two-day interbank call money rate is likely to open below the RBI's repo rate of 5.25% on Saturday due to sluggish demand for funds, as is usually the case on Saturdays. Generally, most banks fulfil their cash requirements on Friday, so there would be minimal demand for funds, dealers said. Government bonds and overnight indexed swap rates are not traded on Saturdays.
Dealers expect the call rate to be in the 4.60–5.20% band. The tri-party repo rate is expected to be in the range of 4.90–5.15%. The weighted average call rate is expected to be in the range of 4.75-5.10%, and the weighted average rate in the tri-party repo market is likely to be around 4.50-5.05%, they said.
The three-day call rate ended at 5.35% Friday. The weighted average call rate was above the repo rate at 5.31%, higher than 5.27% Thursday. Post market hours, the Reserve Bank of India said it would conduct a four-day variable rate repo auction for INR 750 billion Monday.
GOVERNMENT BONDS
On Monday, traders are likely to take fresh positions as they digest the slew of domestic developments for the bond market Friday. The gilt yield curve is seen steepening, as was evident by the price action Friday, especially due to the RBI's measures to shore up foreign capital, dealers said.
However, focus will continue to be on the West Asia war, and its impact on crude oil prices, inflation and growth, dealers said. Traders will assess activity from foreign investors after a bonanza of measures to attract inflows. FPIs net purchased gilts worth INR 32.22 billion Friday through the fully accessible route as of 1900 IST, according to data from Clearing Corp. of India. Traders await Bloomberg Index Services' decision on the inclusion of Indian gilts in its flagship index.
The 6.48%, 2035 bond yield is seen in a range of 6.94-7.05% Monday, which is also the range for the bond in the near term. The movement in the rupee and US Treasury yields may also lend cues through the day, dealers said.
The 10-year benchmark 6.48%, 2035 bond ended at INR 96.62 or 6.9772%, Friday. The newer 6.94%, 2036 bond ended at INR 99.82 or 6.9651% yield.
OIS RATES
On Monday, swap rates will take cues from movements in crude oil prices and developments in the US-Iran peace negotiations. Swaps could tumble if a peace deal between the US and Iran is announced over the weekend. There is uncertainty about when the rate-setting panel will begin raising the repo rate, given higher crude oil prices and rising inflation, they said.
Traders will also track any development on the inclusion of Indian government bonds in Bloomberg Index Services' flagship Global Aggregate Index after the Reserve Bank of India and the Centre Friday unveiled a slew of measures to improve foreign inflows, dealers said. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. Most traders expect the review this month.
The movement of crude oil prices and US Treasury yields could also lend cues. The one-year swap rate is seen at 5.90-6.10% and the five-year at 6.50-6.64%. The one-year swap rate ended at 6.04% Friday. The five-year OIS rate ended at 6.54%.
RBI AUCTION
--Nil
LIQUIDITY
Total net inflows of INR 15.48 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 15.48 billion as coupon on state bonds
* Outflows
--Nil
End
US$1 = INR 94.9450
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Meera Nair
Edited by Avishek Dutta
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