More Stories

Informist, Wednesday, Sept. 2, 2026

 

NEW DELHI – Government bond prices may rise and overnight indexed swap rates may fall after data showed that foreign currency non-resident (banks) deposits under the Reserve Bank of India's special scheme beat all expectations, dealers said. RBI data released after market hours Wednesday showed $127.23 billion of inflows under the scheme between Jun. 8 and Aug. 31, far exceeding the market's estimates of around $100 billion of inflows.

 

Banks are likely to park the rupee liquidity arising from these deposits by buying short-term gilts or receiving OIS rates, dealers said. Moreover, the additional ammunition with the RBI in terms of foreign exchange reserves may prevent speculation on the rupee's fall and strengthen domestic currency, which may be an additional boost to the markets, they said.

 

Meanwhile, the one-day call rate is expected to open below the RBI's repo rate of 5.25% due to the liquidity surplus in the banking system remaining at an over-four-year high, dealers said. The one-day call money rate is seen at 4.60-5.25% Thursday.

 

GOVERNMENT BONDS

Gilt prices Thursday are seen opening sharply higher, especially if crude oil remains at the current level, after the RBI data on FCNR(B) deposits, dealers said. Some of these deposits have been old FCNR(B) deposits rebooked under the scheme, dealers said, but, nonetheless, the higher-than-expected number is likely to be reflected in both systemic liquidity and in government bonds, with banks deploying some of the flows into gilts.

 

Until the window to swap FCNR(B) deposits shuts Sept. 11, traders are unlikely to aggressively place short bets on gilts, they said. Some traders also expect a sudden announcement of a peace deal between the US and Iran, with Brent crude oil futures currently trading at a crucial technical level of about $95 per barrel, at which it has usually seen a fall, dealers added.

 

Bonds will continue to track developments in the war in West Asia and movements in Brent crude oil prices, dealers said. They will also track movements in US Treasury yields, which are under pressure from heavy supply and inflation fears. Focus will also shift to the US Federal Open Market Committee's rate decision mid-month, dealers said. The FOMC decision will be a key trigger for the Monetary Policy Committee's decision on the repo rate in October, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10% in about a month. Nearing the end of September, focus will also be on the Centre's and states' borrowing plan for October onwards, with heavy supply expected from both.

 

Given the expectations of a rate hike, some traders expect the central bank to announce measures to absorb excess liquidity from the banking system amid such a large surplus, dealers said. Core liquidity in the banking system is seen at about $10 trillion by the end of this month, warranting measures to drain durable liquidity, other than the variable rate reverse repo operations the RBI is currently conducting. Traders expect measures that could include incremental hikes in the cash reserve ratio or sales of government bonds through open market operations, they said.

 

Any significant movement in the rupee and swap rates will also lend cues, they said. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.90% and 7.05%, dealers said. On Wednesday, the bond ended at INR 99.74 or 6.9754%.

 

OIS RATES

On Thursday, swap rates may fall after robust FCNR(B) data. Traders expect banks to heavily receive OIS rates over the coming days to deploy the funds, dealers said. On the domestic front, traders will watch the RBI's management of surplus liquidity in the banking system, dealers said.

 

Liquidity is expected to continue to rise this week as banks swap the remaining FCNR(B) inflows under the special facility while expectations that the RBI will introduce measures to drain durable liquidity, including incremental hikes in the cash reserve ratio or a market stabilisation scheme, are gaining traction, dealers said. Such a hike in the CRR would set the stage for a repo rate hike at the next policy meeting, some dealers said. Others said ensuring that the weighted average call money rate is near the repo rate need not signify the movement of interest rates.

 

Traders will also track the movement in crude oil prices and US Treasury yields, along with fresh developments in the US-Iran war. This may lead to a divergence in the direction of short-term and longer-term OIS rates, dealers said.

 

The one-year swap rate continues to reflect around 100 basis points of repo rate hikes over the next 12 months, dealers said. The one-year swap rate is seen Thursday in the range of 5.82-6.10% and the five-year at 6.35-6.65%. On Wednesday, the one-year rate ended at 6.00% and the five-year rate ended at 5.43%.

 

CALL

Thursday, the one-day call rate is expected to open below the RBI's repo rate of 5.25% due to the large liquidity surplus in the banking system, dealers said. Banks will be easily able to meet early demand for funds from primary dealers from funds parked in the SDF window. Wednesday, the one-day call rate ended at 4.70%, its lowest in nearly a month. 

 

The swapping of FCNR(B) inflows and government spending are likely to have further increased systemic liquidity Wednesday, dealers said. The RBI will conduct an overnight VRRR auction for INR 6.00 trillion at 0930-1000 IST Thursday. This is after a 15-day auction Monday and a seven-day tender Tuesday were poorly subscribed and followed by overnight VRRRs. With the "excessive" liquidity in the banking system, traders look ahead to the RBI's measures to drain the surplus and bring back the call rate to near the repo rate, dealers said. 

 

Dealers expect the one-day call rate at 4.60–5.25% Thursday. The tri-party repo rate is expected to be in the 4.50–5.20?nd. The weighted average rate in the call market is seen in the 4.90–5.20?nd, and the tri-party repo rate is likely to be 4.50-5.10%, dealers said.

 

RBI AUCTION

--RBI to hold overnight variable rate reverse repo auction for INR 6.00 tln 0930-1000 IST 

--Govt to buy back INR 300 billion of four gilts via auction 1030-1130 IST

 

LIQUIDITY

Total net inflows of INR 61.26 billion. The calculation does not take into account redemption of the Standing Deposit Facility and scheduled variable rate repo and variable rate reverse repo operations.

 

* Inflows

--INR 22.94 billion as coupon on state bonds

--INR 151.00 billion as redemption of 91-day T-bills

--INR 126.00 billion as redemption of 182-day T-bills

--INR 62.26 billion as redemption of 364-day T-bills

--INR 4.60 trillion as reversal of overnight VRRR auction

 

* Outflows

--INR 105.00 billion as payment for 91-day T-bills

--INR 116.00 billion as payment for 182-day T-bills

--INR 79.94 billion as payment for 364-day T-bills

 

End

 

US$1 = INR 94.97

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

 

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.