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Informist, Friday, Jul. 3, 2026

 

MUMBAI – The two-day interbank call money rate is expected to open below the Reserve Bank of India's repo rate of 5.25% due to usually poor demand for funds on Saturdays, dealers said. Most banks met their borrowing needs on Friday and are unlikely to tap the market on Saturday, pulling down trade volumes, they said. Government bonds and overnight indexed swap rates are not traded on Saturdays. 

 

The three-day call rate ended at 5.28% Friday. Liquidity conditions are expected to improve next week as Foreign Currency Non-Resident (Bank) deposits are expected to pick up. Banks hedging deposits under the central bank's concessional swap window will gain rupee liquidity, potentially easing money market rates, dealers said. Later in the week, the maturity of the 8.33%, 2026 gilt with an outstanding of over INR 310 billion Thursday will also add to systemic liquidity. 

 

However, tax deducted at source and excise duty outflows by Tuesday as well as the settlement of the INR 340 billion weekly gilt auction Monday may lead to a temporary tightness in liquidity again unless banks draw down their cash balances with the RBI, dealers said. After market hours Friday, the RBI announced a three-day variable rate repo auction for INR 750 billion on Monday. The auction is likely to be poorly subscribed, dealers said.

 

Dealers expect the call rate to be at 4.50-5.25% Saturday. The tri-party repo rate is expected to be in the 4.70–5.20?nd. The weighted average call rate is expected to be in the 4.90–5.20?nd, and that of the tri-party repo market is likely to be in the 4.80–5.15?nd, they said.

 

GOVERNMENT BONDS

On Monday, bond prices will track the movement in US Treasury yields, which are likely to open lower in early Asian trade after the monthly US jobs report for June, released after Indian market hours on Thursday, showed job gains were lower than expected. US markets are closed on Friday. Any significant movement in Brent crude oil prices will also provide cues, dealers said.

 

Traders are also likely to remain cautious ahead of the release of India's June inflation data, dealers said. Traders await the release of India's June inflation data, which is expected to be on the higher side, reflecting the rise in energy prices, dealers said. Deficient southwest monsoon rainfall will also contribute to higher inflation, dealers said. CPI inflation for June will be released on Jul. 13.  

 

Traders remain optimistic that Indian sovereign bonds will be added to Bloomberg's flagship Global Aggregate Index. If the inclusion proceeds, they expect India's Fully Accessible Route bonds to account for 0.8-1.0% of the index. Bloomberg had said in its September consultation note that a weight of 0.7% was under consideration. On Friday, the 10-year benchmark 6.94%, 2036 bond ended at INR 101.62 or 6.7108% yield. 

 

OIS RATES

Swaps are not traded on Saturdays. On Monday, swap rates are expected to track US Treasury yields in early Asian trade. Swap rates will also track movements in crude oil prices. Traders await Bloomberg's decision on the inclusion of gilts in its flagship index, with most traders betting on an inclusion. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits.

 

Deficient rainfall and higher food prices are expected to push up retail inflation in the coming months, while the RBI is likely to drain systemic liquidity ahead of a likely rate hike cycle, dealers said. However, no rate hike is expected until October after assessing recent commentary from RBI officials, dealers said. 

 

The movement of the rupee could also lend cues. The one-year swap rate is seen in the range of 5.60-5.90% and the five-year at 6.10-6.30%. On Friday, the one-year swap rate closed at 5.78% and the five-year swap rate ended at 6.18%. 

 

RBI AUCTION

--Nil

 

LIQUIDITY

Total net inflow of INR 8.15 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 8.15 billion as coupon on state bonds

 

* Outflows

--Nil

 

End

 

US$1 = INR 95.21

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

 

Reported by Meera Nair

Edited by Saji George Titus

 

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