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Informist, Wednesday, Sept. 9, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates will take cues from the movement in crude oil prices and US Treasury yields at the open Thursday, dealers said. Rising oil prices have increased fears of the Reserve Bank of India's Monetary Policy Committee increasing the policy repo rate of 5.25% at its next meeting in October. 

The RBI's steps to drain liquidity from the banking system will also be closely watched. The central bank has been conducting near-daily variable rate reverse repo auctions for the last five weeks, but the weighted average call rate – the operating target of monetary policy – has been below the Standing Deposit Facility rate of 5.00% for the past week as the systemic liquidity surplus has topped INR 10 trillion. Foreign exchange dealers Wednesday said the RBI had likely done dollar-rupee sell-buy swaps maturing in up to two months to drain liquidity.

Focus will also be on the US Federal Open Market Committee's mid-month rate decision, dealers said. The FOMC decision will be a key trigger for the RBI's Monetary Policy Committee's repo rate decision in October, dealers said. US CPI inflation for August, due Friday, is seen rising 3.4% on year, according to a survey compiled by The Wall Street Journal. India's CPI inflation for August is seen at 4.8% in August, according to the median of an Informist Poll, rising further from the central bank's 4% target.

The one-day interbank call money rate is seen opening near the Standing Deposit Facility rate of 5.00% Thursday due to ample surplus liquidity in the banking system, dealers said. 

GOVERNMENT BONDS

Thursday, gilts may continue to take cues from movements in crude oil prices and US Treasury yields, dealers said. The impact of the RBI's liquidity measures to prop up overnight money market rates amid a record surplus liquidity in the banking system is also being closely watched. The central bank likely conducted dollar-rupee sell-buy swaps of about a month's tenure in the foreign exchange market Wednesday.

Some traders expect the central bank to announce additional measures to absorb excess liquidity from the banking system amid such a large surplus, dealers said, beyond the variable-rate reverse repo operations the RBI has been conducting, they said. Traders expect the yield on the 10-year benchmark bond to hit 7.10%, tracking global yields and as rate hikes are priced in, though this is seen to be unlikely in the near term amid flush liquidity.

Traders are also waiting for the release of the borrowing calendar for state and central government bond issuances for the next quarter and for the second half of the current financial year, respectively. They want to see the proportion of different bond tenures in the calendar, dealers said. The RBI has held several meetings with market participants this week and the last to discuss the Centre's borrowing calendar, 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 99.87, or 6.9568%.

OIS RATES 

On Thursday, swaps are expected to track overnight movements in crude oil and US Treasury yields, as well as any fresh developments in the US-Iran war, dealers said. Traders also look for indications of liquidity-draining measures from the RBI, with foreign exchange dealers saying Wednesday the central bank conducted dollar-rupee sell-buy swaps in the secondary market to absorb liquidity.

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits thin out closer to the end of the deadline Friday to swap dollars under this scheme, swap rates may no longer be capped, dealers said. However, bets that the swap rate curve will flatten will take time to play out as long as there is such a large surplus of liquidity in the banking system, they said.

The one-year swap rate is seen 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 5.99% and the five-year rate was at 6.48%.

CALL

Thursday, the one-day call rate is seen near the RBI's Standing Deposit Facility amid hefty surplus liquidity. Market participants in need of cash are likely to prefer borrowing funds from the tri-party repo market, leading to poor volume in the call market, dealers said. On Wednesday, the one-day call rate ended at 5.10%.

The banking system liquidity could rise to near INR 12 trillion this week as the window for swapping FCNR(B) deposits ends on Friday, dealers said. Attention will be on the RBI's liquidity measures to bring the weighted average call rate back to the policy corridor. The central bank will conduct an overnight, INR-6.00-trillion VRRR auction at 0930-1000 IST Thursday. 

Outflows for advance tax and goods and services tax payments later this month will drain about INR 4.50 trillion from the banking system. By the RBI's next policy meeting in October--which is the same day as the reversal of the 30-day VRRR--core systemic liquidity is likely top INR 10 trillion, which could merit permanent measures to drain the liquidity surplus, dealers said. Dealers expect the one-day call rate at 4.00–5.25% Thursday. The one-day tri-party repo rate is expected to be in the 3.50–5.15% band. 

RBI AUCTION

--RBI to conduct overnight variable rate reverse repo auction for INR 6.00 trillion 0930-1000 IST 

LIQUIDITY

Total net inflows of INR 181.81 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 20.30 billion as coupon on state bonds

--INR 4.62 trillion as reversal of overnight variable rate reverse repo tender

--INR 253.00 billion as maturity of 91-day Treasury bills

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

--INR 64.61 billion as maturity of 364-day T-bills

* Outflows

--INR 121.50 billion as payment for 91-day T-bills

--INR 90.00 billion as payment for 182-day T-bills

--INR 74.60 billion as payment for 364-day T-bills

End

US$1 = INR 95.1050

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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