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Informist, Wednesday, Jul. 29, 2026

MUMBAI – Government bond prices and overnight indexed swap rates will Thursday track movements in US Treasury yields after the US Federal Open Market Committee's interest rate decision at 2330 IST Wednesday. Traders expect the US rate-setting panel to hold interest rates steady, though they expect US Federal Reserve Chair Kevin Warsh to strike a "hawkish" tone focused on curbing inflation, which remains above the Fed's target. Traders are also wary of rising uncertainty, as the Fed chair is unlikely to provide forward guidance, they said.

On Thursday, the one-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% on early demand for funds from primary dealers, though rates could ease further in the day with ample liquidity in the system, dealers said.

GOVERNMENT BONDS

On Thursday, gilt prices will take cues from overnight movements in Brent crude oil prices and US Treasury yields, dealers said. Most market participants expect a hawkish pause by the US FOMC, dealers said.          

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. However, the US rate-setting panel is expected to stand pat on rates Wednesday, dealers said. The CME FedWatch tool showed a 64% probability that the Fed funds target rate would remain unchanged at 3.50-3.75% on Wednesday.

Continued inflows from foreign currency non-resident bank deposits are likely to limit the negative impact of the war in West Asia, dealers said. They also expect further flows on the view that Bloomberg will soon announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.75-6.82% Thursday.  

Traders will also track monsoon progress, as deficient rainfall will contribute to higher inflation, they said. However, domestic inflation is largely in check as of now, dealers said, barring imported inflation from rising crude oil prices. Traders are now gauging whether the RBI's MPC will raise the repo rate in October to curb inflation, they said. The 10-year 2036 bond ended at INR 101.00 Wednesday, or a 6.7964% yield.

OIS RATES

Thursday, swap rates are seen tracking US Treasury yields after the key interest rate decision by the US FOMC. Traders will also track the movement in Indian government bond yields. Traders will also track near-month Brent crude oil prices, and developments in the war in West Asia. 

Traders also await the outcome of the RBI's Monetary Policy Committee meeting decision next week, with traders expecting a status quo on the repo rate, though commentary could tilt towards prioritising inflation, with economic growth still 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 fronts, dealers said. 

Receiving by foreign and private-sector banks hedging foreign currency non-resident bank deposits may cap any rise in swap rates. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.80-6.10% and the five-year at 6.20-6.50%. The one-year swap rate closed at 5.93% and the five-year swap rate ended at 6.40%. 

CALL

On Thursday, the one-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% on early demand for funds from primary dealers, though rates could ease further in the day with ample liquidity in the system, dealers said. Traders expect the RBI to announce an overnight variable rate repo auction for INR 500 billion Thursday, to roll over the reversal of Wednesday's operation, which saw robust subscription. Inflows through foreign currency non-resident bank deposits may aid systemic liquidity, with traders estimating current inflows through these deposits at about $30 billion. Traders will also assess the drain on rupee liquidity due to the RBI's dollar sales in the foreign exchange spot market. Nearing the end of the week, there may be upward pressure on rates closer to the end of the reporting fortnight. 

Traders do not expect the RBI to take any measures to infuse durable liquidity amid inflows from foreign non-currency resident bank deposits. Dealers expect the call rate at 4.60–5.30% Thursday. The tri-party repo rate is expected to be in the 4.60–5.25% band. The weighted average call rate is expected to be in the 5.10–5.30% band, and that in the tri-party repo market is likely to be in the 5.00–5.25% band, they said. The one-day call money rate ended at 5.25% Wednesday, with the weighted average call rate at 5.30%.

RBI AUCTION

--Nil

LIQUIDITY

Total net outflows of INR 50.10 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 218.33 billion as redemption of 91-day Treasury bills

--INR 130.00 billion as redemption of 182-day T-bills

--INR 51.53 billion as redemption of 364-day T-bills

--INR 16.79 billion as coupon on state bonds

* Outflows

--INR 298.00 billion as payment for 91-day T-bills

--INR 98.75 billion as payment for 182-day T-bills

--INR 70.00 billion as payment for 364-day T-bills 

--INR 127.20 billion as reversal of three-day variable rate repo tender

--INR 500.20 billion as reversal of one-day variable rate repo tender

End

US$1 = INR 95.6475

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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