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Informist, Monday, Aug. 3, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates are likely to track crude oil prices and US Treasury yields Tuesday, while market participants will also watch for any progress in talks between the US, Iran and Gulf nations, dealers said. 

 

Traders have also begun taking positions ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday. Traders largely expect the policy outcome to be a "non-event", with the MPC seen standing pat on the repo rate and policy stance. Most traders also expect the central bank to keep its inflation and growth forecasts unchanged. The commentary of the rate-setting panel could turn slightly restrictive, dealers said. 

 

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.

 

On Tuesday, the one-day interbank call money rate is seen below the RBI's repo rate of 5.25% on low demand for funds amid lack of major outflows, dealers said.

 

GOVERNMENT BONDS

Tuesday, gilt prices may take direction from developments in the war in West Asia and their impact on crude oil prices and US Treasury yields, dealers said. Some traders may avoid aggressive bets ahead of the announcement of the RBI's monetary policy Wednesday, they said.

 

The result of the state bond auction may also lend cues during the day. The RBI said 17 states and Union territories will raise INR 268.50 billion through the sale of bonds Tuesday, the same as indicated in the Jul-Sept calendar. The heavy supply may put pressure on gilt prices Tuesday, though banks want to secure higher-yielding bonds for their held-to-maturity books, dealers said. The 10-year benchmark 6.94%, 2036 bond ended at INR 100.73, or 6.8343% yield. 

 

OIS RATES

On Tuesday, swap rates will track the likelihood of any negotiations between the US, Iran and Gulf nations and its impact on crude oil prices, even though Iran reportedly denied any talks with the US. Swaps will also track surplus liquidity in the banking system and the RBI's steps to manage this liquidity. The overnight Mumbai Interbank Outright Rate was set at 5.14% Monday, the lowest in six sessions. Traders expect the RBI to conduct variable rate reverse repo operations since systemic liquidity is likely to remain ample for the next couple of weeks. 

 

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 5.75-6.15% and the five-year at 6.25-6.50%. The one-year swap rate closed at 5.88% and the five-year swap rate ended at 6.37%.

 

CALL

On Tuesday, the one-day interbank call money rate is seen below the RBI's repo rate of 5.25% on low demand for funds amid lack of major outflows, dealers said. Surplus liquidity is seen as comfortable due to inflows from the Centre's expenditure for salaries and pensions, and inflows into foreign currency non-resident bank deposits, dealers said. Dealers expect the call rate at 4.60–5.25% Tuesday. The tri-party repo rate is also expected to be in the 4.60–5.20?nd. The weighted average call rate is expected to be in the 5.00–5.25?nd, and that in the tri-party repo market is likely to be in a 4.60-5.15% range, they said. The one-day call money rate ended at 5.10% Monday. The weighted average call rate was 5.10%.

 

RBI AUCTION

--Seventeen states to raise INR 268.50 billion via bond sale

 

LIQUIDITY

Total net inflows of INR 28.88 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 23.88 billion as coupon on state bonds

--INR 5.00 billion as redemption of state bonds 

 

* Outflows

--Nil

 

End

 

US$1 = INR 95.3375

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

 

Reported by Cassandra Carvalho

Edited by Saji George Titus

 

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