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Informist, Friday, Jul. 31, 2026

MUMBAI – On Saturday, the two-day interbank call money rate is seen below the RBI's repo rate of 5.25% on low demand for funds amid a lack of major outflows, and in thin trade as is usually seen on Saturdays. Surplus liquidity is likely to increase due to inflows from the Centre's expenditure for salaries and pensions, and foreign currency non-resident bank deposits, dealers said. Traders will also assess the drain on rupee liquidity due to the Reserve Bank of India's dollar sales in the foreign exchange spot market.

Dealers expect the call rate at 4.60–5.15% Saturday. The tri-party repo rate is also expected to be in the 4.60–5.15% band. The weighted average call rate is expected to be in the 4.70–5.10% band, and that in the tri-party repo market is likely to be in a similar range, they said. 

Swaps and government bonds are not traded Saturdays. The three-day call money rate ended at 5.35% Friday. The weighted average call rate was 5.37%.

GOVERNMENT BONDS

Gilts are not traded on Saturdays. On Monday, gilt prices may fall sharply after Bloomberg Index Services Ltd. said after market hours it has deferred the inclusion of India's fully accessible route bonds on its flagship Global Aggregate Index. The index provider said positive developments had taken place since its last update in January, but more time was warranted to make the decision as the impact of recent regulatory changes improves market access for foreign portfolio investors.

The index provider noted recent policy changes by the government and regulators have reduced operational complexity and improved settlement efficiency, responding to several hurdles raised at the previous update in January. Still, enhancements have not been completely reflected in day-to-day market practice, which was essential for the flagship benchmark for global investment-grade fixed income, Bloomberg Index Services said. It did not give a timeline for the next update.

The fall on Monday is likely to be worsened as it comes just after traders have picked up INR 340 billion of the 10-year benchmark 6.94%, 2036 gilt at auction Friday. However, continued inflows from FCNR(B) deposits are likely to limit the negative impact of the war in West Asia and the Bloomberg announcement, dealers said. The 10-year benchmark gilt yield is seen in the range of 6.80-6.95% Monday. The yield on the 10-year benchmark gilt is seen opening near 6.90%, with a further rise likely later in the session.  

The movement in US Treasury yields and crude oil prices over the weekend may also impact gilt prices at the open. After the Indian bond market shut, the 10-year US yield hit an over-six-month high of 4.74%.

On the domestic front, traders and economists almost universally expect the rate-setting panel to retain the policy repo rate at 5.25%, with June data showing retail inflation remained well within the RBI's 2-6% target band. The policy stance is also seen being retained at "neutral". The pressure on the RBI to tighten monetary policy is expected to mount later in the year, as the US Federal Reserve is expected to increase policy rates in 2026, with a tightening interest rate differential pressuring the rupee. The CME FedWatch tool showed an 83% probability that the Fed funds target rate would be hiked by December, with around 60% expecting the increases to come as early as the next meeting in September. The 10-year 2036 bond ended at INR 100.73 Friday, or a 6.8343% yield.

OIS RATES

Swaps are not traded Saturdays. On Monday, swap rates are seen rising tracking a rise in government bond yields, along with US Treasury yields and Brent crude oil prices, dealers said. The yield on the 10-year US Treasury note topped 4.74% post market hours Friday, which is likely to trigger aggressive paying by offshore participants as the interest rate differential between safe haven assets and emerging market rates narrows, making the latter less appealing. The 10-year government bond yield could rise by as much as 10 basis points Monday, depending on where crude oil prices are, after Bloomberg Index Services, post market hours Friday said it deferred the inclusion of Indian government bonds in its flagship $70-trillion Global Aggregate Index. The rise in bond yields was tempered the past two months as traders priced in the possibility of an inclusion, while swap rates had risen tracking a rise in global yields. 

Traders await the decision of the RBI's Monetary Policy Committee meeting next week, with traders expecting status quo on the repo rate, though commentary could lean towards prioritising inflation control with economic growth still seen to be strong. The RBI is unlikely to alter its forecasts on growth and inflation, with the central bank likely to flag uncertainty on the geopolitical and crop harvest front, dealers said. However, traders are bracing for a firmer policy commentary and tone with US Treasury yields and Brent crude oil prices rising, and therefore also putting pressure on the rupee. 

Receiving by banks hedging foreign currency non-resident bank deposits may cap a rise in swap rates to an extent. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.80-6.15% and the five-year at 6.20-6.70%. The one-year swap rate closed at 5.92% Friday. The five-year swap rate ended at 6.41%.

RBI AUCTION

--Nil

LIQUIDITY

There are no scheduled net inflows or outflows Saturday. 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

--Nil

* Outflows

--Nil

End

US$1 = INR 95.3800

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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