The yield on the benchmark 6.94% 2036 bond ended at 6.7578%, versus 6.7582% in the previous session.

The borrowing rate failed to breach the 6.75% mark, a key psychological level, as sales by state-run banks offset demand from foreign banks, traders said.

“We have seen buying across the curve, with the short and long ends bought aggressively, while the belly remains sluggish,” said Alok Singh, head of treasury at CSB Bank in Mumbai.

The belly of the yield curve, which refers to the most liquid 10-year segment, remained anchored by ample supply, traders said.

India’s green bonds find footing as stable ‘greenium’ underscores investor appetite

Long bonds attracted value buying this week as relatively higher yields attracted buyers, traders said, narrowing the gap between yields on the 10-year and 40-year bonds to a six-week low of 69 basis points.

Rising oil prices kept pressure on bonds, with Brent crude gaining more than 4% this week to $87 per barrel. Higher crude prices can stoke inflation and hurt government finances in India, which imports most of its crude oil needs.

Liquidity from a deposit scheme for attracting dollars from non-resident Indians, coupled with softer inflation prints in India and the United States, has blunted the oil-driven pressure and cooled rate-hike expectations.

U.S. consumer prices rose 0.1% in July after falling in June, while annual inflation eased to 3.4% from 3.5%. India’s retail inflation rose to 4.45% in July from 4.38% in June, coming in slightly below market expectations.

The data has strengthened expectations that neither the RBI nor the Federal Reserve would raise rates soon, traders said.

Rates

India’s overnight index swap rates fell for a third straight week as RBI rate-hike bets receded.

The one-year swap rate fell 3.5 bps over the week to 5.73%, the two-year rate declined 2 bps to 5.9225%, and the five-year rate eased 1.5 bps to 6.2475%.

The reserves jumped $14.1 billion week-on-week, the largest rise since January, the Reserve Bank of India said on Friday. The rise was led by a $9.9 billion weekly gain in the central bank’s foreign currency assets.

The central bank’s FX pile has been rising over the last six weeks, which have witnessed an accretion of about $40 billion.

Measures to draw dollar inflows announced in June include discounted hedging facilities for overseas borrowings by state-run firms and banks alongside tax cuts on foreign investments in government bonds and a free-of-cost hedging facility for banks to raise overseas FX deposits.

Between June 8 and July 31, the swap facilities drew flows worth over $40 billion while foreign investors net purchased Indian government bonds worth over $2.5 billion under the so-called fully accessible route.

Changes in foreign currency assets, expressed in dollar terms, include the effect of appreciation or depreciation of other currencies held in reserves.

India’s forex reserves hit three-month peak, see biggest weekly rise in six months

Analysts have said that recent central bank interventions to defend the rupee have likely offset the impact of some of the overseas dollar inflows.

Foreign exchange reserves include India’s Reserve Tranche position in the International Monetary Fund.

Foreign exchange reserves (in million U.S. dollars)

Aug 07 July 31

2026 2026

Foreign currency assets 574,625 564,680

Gold 108,738 104,743

SDRs 18,745 18,666

Reserve Tranche Position 4,894 4,778

Total 707,002 692,866

New Delhi sold 50 billion rupees ($524 million) of 30-year sovereign green bonds, at a so-called greenium of four basis points on Friday, leading to an average premium of four bps in the fiscal half-year, the highest since such sales began in the second half of fiscal 2023.

A greenium is the lower yield investors are willing to accept for bonds that finance environmentally sustainable projects.

“Green bonds are eligible for classification under the infrastructure category, which provides an added benefit for insurance companies from an asset allocation and regulatory perspective,” said Shobit Gupta, chief investment officer, Generali Central Life Insurance.

“The existing demand-supply dynamics have resulted in a noticeable greenium, with green bonds trading richer than comparable conventional government securities,” he said.

Including the latest issuance, India now has sovereign green bonds worth 877 billion rupees or $9.2 billion outstanding. Notes with 30-year maturities are the most issued, crossing the 500 billion rupee mark.

Indian bonds mirror gains in Treasuries as oil slips

Strong demand has led to calls by market participants for some increase in the supply of such papers, as insurers manage a growing corpus and find a lack of sufficient substitutes.

“We believe the market is well positioned to absorb a higher supply of green bonds in the second half of FY27, particularly if the issuance is concentrated in the longer part of the curve,” said Sachin Bajaj, chief investment officer at Axis Max Life Insurance.

“Demand for these bonds continues to be supported by insurers’ ALM requirements.”

After starting with five-year and 10-year green bonds in January 2023, New Delhi had to cancel or cut the size of a few issuances, before ultimately selling these papers at yields above those ofcomparable government bonds.

However, the greenium returned with the government sticking to issuing 30-year green bonds in the last 18 months.

“Long green bond issuance has remained consistent over the past three fiscal years, adequately matching current investor demand,” Rahul Bhuskute, CIO at Bharti AXA Life Insurance said.

BOB, India’s second largest state-run lender by assets, plans to raise funds through a dual-tranche bond issue maturing in three years and five years, and has provided initial guidance.

The bank has offered a spread of 120 basis points above U.S. Treasury for the three-year option and 130 bps on the five-year sale, the bankers added, requesting anonymity as they are not authorised to speak to media.

BOB did not reply to a Reuters email seeking comment.

“Ideally, they are eyeing $500 million through each maturity, but if the cutoffs are aggressive, they could choose to upsize one of the maturities,” one of the bankers quoted above said.

SBI sees strong demand for 5-year dollar bond, tightens pricing

Indian banks have been making a beeline for dollar issues after the Reserve Bank of India’s swap facility announced in June made overseas borrowing cheaper.

State Bank of India on Wednesday raised $500 million through a five-year issue at 5.25% coupon payable semi-annually. The issue was sold at a spread of 88 bps over Treasuries, sharply lower from a guidance of 120 bps, with bidding nearly touching $2.5 billion.

Private peers such as HDFC Bank, Axis Bank and ICICI Bank also raised funds through dollar bonds in June and July.

Bank of Baroda will issue these papers through its branch in International Financial Service Centre Banking unit at GIFT City. The proceeds will be used towards funding requirements of the bank’s head office as well as foreign branches, along with general corporate purposes.

The bonds will be rated BBB, BBB– and BBB+ by S&P, Fitch Ratings and CareEdge Ratings, in line with the issuer’s ratings.

The benchmark 6.94% 2036 bond yield fell 2 basis points to 6.7582%. Bond yields move inversely to prices.

Brent crude futures fell 2% to $87.20 per barrel in Asian trade, easing after six sessions of rise. Investors weighed prospects of weaker global demand and higher U.S. crude inventories against supply risks from the stalled U.S.-Iran peace talks.

Lower oil prices are positive for India, the world’s third-largest crude importer, as they ease imported-inflation and current-account pressures, improve the macroeconomic outlook and support lower bond yields.

Market sentiment was also aided by easing concerns over further policy tightening in the United States and India after recent inflation data suggested both central banks may hold rates steady in the near future, traders said.

U.S. retail inflation rose 0.1% in July after declining in June, while annual inflation slowed to 3.4% from 3.5%. The data lowered the implied probability of a September Fed rate hike to 36%, according to CME FedWatch. The 10-year U.S. Treasury yield was last down 2 basis points at 4.67%.

India’s retail inflation rose to 4.45% in July from 4.38% in June, but came in below analysts’ 4.5% estimate.

Overnight index swap rates also eased, supporting bond buying, traders said.

“Although the swap market is pricing in one RBI rate hike over the next six months, we expect the RBI to keep rates on hold,” UBS said in a note.

Investors now await New Delhi’s 320 billion rupee debt sale on Friday for further cues on demand.

Rates

The one-year rate fell 2 bps to 5.75%, the two-year rate dropped 3 bps to 5.93%, and the liquid five-year rate slipped 3.25 bps to

6.25%.

Oil prices eased marginally to around $88 per barrel after media reports that the U.S. and Iran have agreed to extend a 60-day ceasefire set to expire on August 17, according to sources.

The yield on India’s benchmark 10-year government bond ended at 6.7776%, against 6.7791% at previous close. Bond yields move inversely to prices.

Meanwhile, India’s retail inflation for July rose 4.45%, up from 4.38% in June and against 4.50% forecast in a Reuters poll.

The U.S. inflation report, due after Indian market hours, is expected to be more influential, and a stronger-than-expected reading could lead markets to price in a more hawkish Federal Reserve stance and push up Treasury yields.

“More so than the labour market, the Federal Reserve’s focus has shifted more towards the inflation side of the mandate, and as such, while the weaker-than-expected non-farm payrolls numbers last week helped, inflation numbers are arguably more important,” MUFG said in a note.

Still, underlying sentiment for prices remained supportive as expectations of an immediate hike in policy rates by the Reserve Bank of India have abated after dovish guidance by the central bank last week, when it kept its policy rates unchanged.

Rates

India’s overnight index swap rates ended largely unchanged, and are set to show major reaction on Thursday after U.S. data.

The one-year rate ended at 5.77%, while the two-year rate closed at 5.96%. The liquid five-year rate settled at 6.27%.

SBI raised $500 million through a five-year dollar bond issued via its London branch, the lender said in a stock exchange filing late on Tuesday.

These bonds will be priced at a spread of 88 basis points over U.S. Treasuries, sharply below initial guidance of 120 bps. The notes carry a coupon of 5.25%, payable semi-annually.

The final spread was broadly in line with CreditSights’ expectation of 90 basis points, although the research firm expects it to tighten further to around 80 basis points in the secondary market.

Spreads on dollar bonds issued by Indian borrowers have widened in recent weeks on expectations of heavy supply following the Reserve Bank of India’s swap concession window, while demand has been tempered by attractive rates on foreign-currency deposits.

SBI returns to dollar debt market, bankers see strong demand

“As we had anticipated, some of this spread premium has begun to fade as supply is absorbed… We have an outperform recommendation on SBI,” CreditSights analysts said in a note.

The lender witnessed tightest pricing, after ICICI Bank sold notes at 100 bps, while HDFC Bank sold notes at a spread of 90 bps over Treasuries.

SBI had planned to raise $1 billion through a public dollar bond issue in June, but deferred the sale due to higher borrowing costs following heavy issuance by Indian lenders.

The bank subsequently raised $600 million through a private placement of three-year dollar bonds at a spread of 100 basis points over the Secured Overnight Financing Rate (SOFR).

The issue comes at a time when Indian banks are making a beeline for dollar issues after the RBI’s swap facility announced in June made overseas borrowing cheaper.

Large private lenders, including HDFC Bank, Axis Bank and ICICI Bank have raised funds through dollar bonds in June and July.

Meanwhile, bankers expect SBI to tap the market again in a few weeks for raising dollars, as the board has approved raising of up to $2 billion through bonds sold in dollar or any other major currency in this financial year.

Similarly, 10-gram gold was sold at Rs397,750 after it increased by Rs3,601, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Tuesday, gold price per tola reached Rs459,736 after a gain of Rs2,400 during the day.

The international rate of gold was up by $42 to reach $4,415 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs146 to reach Rs7,111 per tola.

Brent extended Monday’s 5% climb after Washington responded to Tehran’s peace proposal with fresh demands, but trimmed some gains to last trade at $87.7. Elevated oil prices could stoke inflation and strain the fiscal balance, current account and currency in India, the world’s third-largest crude importer.

The benchmark 6.94% 2036 Indian bond yield rose 1.5 basis points to 6.7791%, its biggest one-day rise in over one week.

“Some value buying emerged in the second half of the session as the 10-year yield did not hold above key 6.80% level,” a private bank trader said.

Investors now await inflation data for the U.S. and India, due Wednesday. Rising price pressures in the U.S. have lifted the implied probability of a September Federal Reserve rate hike to 51%, from 44% a day earlier.

India’s retail inflation reading is forecast to edge up to 4.50% in July from 4.38% in June.

Still, ample banking-system liquidity from the RBI’s diaspora deposit scheme supported demand, especially for the short-end.

“The short end of the yield curve should continue to be supported by surplus banking system liquidity and reduced issuance of certificate of deposits by banks as foreign inflows remain strong,” said Puneet Pal, head of fixed income at PGIM India Mutual Fund.

Some investors also picked up longer-dated bonds as the curve steepened. Foreign investors bought nearly 17 billion rupees ($178 million) worth of the 7.34% 2064 bond so far this week, CCIL data showed.

Rates

India’s overnight index swaps also jumped tracking higher oil prices.

The one-year rate closed at 5.79%, up 1.25 bps, and the two-year rate rose 4.75 bps to 5.9850%.

The five-year rate perched 3.75 bps higher at 6.2925%.

Equity funds, however, registered net inflows for a record 65th consecutive month, data from the Association of Mutual Funds in India showed on Tuesday, supported by stronger-than-expected corporate earnings, central bank support for the rupee and softer crude prices.

Large-cap funds recorded outflows of 13.22 billion rupees last month, compared with inflows of 20.67 billion rupees in June.

“Given FPIs’ relatively higher ownership of large-caps, a return in foreign buying may have encouraged domestic investors to book profits in the segment,” AMFI CEO Venkat Chalasani said.

India proposes tax relief for offshore funds using local managers

Foreign investors bought a net $2.12 billion of Indian equities in July after four straight months of outflows.

Meanwhile, small-cap fund inflows jumped 39% to an all-time high of 77.68 billion rupees in July, while mid-cap inflows rose 1.7% to 61.92 billion rupees.

“The willingness to deploy fresh capital into small- and mid-cap categories reflects investors’ comfort with taking calculated exposure to higher-growth segments of the market,” said Himanshu Srivastava, principal, manager research at Morningstar Investment Research India.

“Besides, the recent recovery in the mid- and small-cap segments appears to have reinforced investor confidence, encouraging continued allocations to these categories,” Srivastava said.

Systematic investment plans, the preferred route for retail investors, marked a 0.6% increase in contributions to 319.61 billion rupees, just shy of a record 320.87 billion rupees hit in March.

Since their lows in March and April, the small-caps and mid-caps have risen 32.6% and 22.6%, respectively, compared with a 10.3% rise in the Nifty.

Debt-oriented schemes attracted 1.88 trillion rupees ($19.7 billion) in July, their first inflow in three months.

“The near-term outlook for short-duration categories remains highly positive as institutional capital begins to redeploy,” said Umesh Sharma, CIO of debt at The Wealth Company Mutual Fund.

“Yields are expected to soften, supported by strong dollar inflows from FCNR(B) deposits… and a reduction in domestic debt supply,” he added.

Similarly, 10-gram gold was sold at Rs394,149 after it increased by Rs2,058, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Monday, gold price per tola reached Rs457,366 after a gain of Rs800 during the day.

The international rate of gold was up by $24 to reach $4,373 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs62 to reach Rs6,965 per tola.

The benchmark 6.94% 2036 bond ended little changed at 6.7643% on Monday.

Data on Friday showed that U.S. employers unexpectedly shed 23,000 jobs in July, prompting traders to cut odds of a Federal Reserve interest-rate hike in September to 42% from 67% a week earlier.

Meanwhile Brent crude futures rose 1.4% in Asian trade to $84.75 per barrel, set to extend gains to a fourth day.

Lower Fed-hike odds support Indian debt, but as a major oil importer, higher crude prices can ignite domestic inflation, trade balance and fiscal concerns.

India’s ultra-long bonds, however, advanced, likely due to insurer-led value buying, traders said.

French lender’s India treasurer pegs Indian rupee floor near ‘fair value’ of 96 per dollar

The yield on the 7.24% 2055 bond fell 1.5 basis points to 7.3955%, while the 40-year yield declined 2.5 bps to 7.4847%, both near three-week lows.

Approximately 90% of Tata Mutual Fund’s gilt fund is deployed in securities maturing in 14/15 years, 30 years and 40 years, the asset manager said in a note.

“The yield curve is quiet steep and largely resultant of geopolitical developments. We believe RBI will continue to remain supportive and yields could drive south sharply once Middle East war comes to an end.”

Investors will now watch inflation readings from India and the United States due this week for fresh rate cues. A Reuters poll of 40 economists forecast India’s July retail inflation would rise to 4.50% from 4.38% in June.

Rates

India’s overnight index swaps ended mixed.

The one-year rose 1.5 bps to 5.7775%, inching higher after RBI’s liquidity draining operations.

The two-year swap rates ended little changed at 5.9525% and the five-year rate declined about 1 basis point to 6.2550%.

Similarly, 10-gram gold was sold at Rs392,091 after it increased by Rs685 according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Saturday, gold price per tola reached Rs456,536 after a gain of Rs2,200 during the day.

The international rate of gold was up by $8 to reach $4,349 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs77 to reach Rs6,903 per tola.

The consortium comprises KPMG, Bridge Factor, Haidermota & Co., HRSG and Asiatic Public Relations. It will provide financial, legal, human resources and public relations expertise to support the Privatisation Commission in taking the transaction forward.

Under the agreement, the consortium will conduct comprehensive due diligence of HBFCL, advise on the optimal transaction structure, carry out valuation and assist the Privatisation Commission throughout the marketing and execution of the privatisation process.

The latest move comes after the government’s previous attempt to privatise HBFCL failed. Pakistan Mortgage Refinance Company Limited (PMRCL) was the only bidder to qualify in that process, but its bid was rejected by the Privatisation Commission for being below the reference price approved by the federal cabinet.

The commission said the renewed privatisation effort was aimed at leveraging private-sector expertise to improve HBFCL’s governance and operational efficiency while expanding access to housing finance.

It said a stronger and more competitive HBFCL could help increase financing opportunities, particularly for low- and middle-income households, and support the government’s broader objective of promoting affordable housing.

The Privatisation Commission said it would work closely with the financial adviser and other stakeholders to ensure the transaction proceeds in line with the approved process and regulatory requirements.

The Reserve Bank of India kept the repo rate unchanged on Wednesday, but cut its headline and core inflation forecast for the year, while promising sufficient liquidity for the banking system, allying concerns for a near-term rate hike.

RBI could be watching how core inflation evolves, rather than relying on forecasts given history of past undershooting and would consider policy changes only when this metric jumps to close to 4% inflation target, ICICI Securities Primary Dealership said in a note.

“Strictly, going by this interpretation, RBI is hinting it is not inclined to hike in this fiscal year at all.”

The yield on India’s benchmark 6.94% 2036 bond ended at 6.7651% against 6.7666% previous close. For the week, the yield fell 7 bps.

Oil prices slipped for second straight week on rising hopes of a diplomatic solution in the U.S.-Iran war, which could help to restore supply in the Middle East. Brent was around $82 per barrel, down 9% for the week after dropping 7% last week.

India is the world’s third-largest importer and consumer of oil, and the direction of crude prices has a direct impact on import bill, inflation and the currency.

Rates

India’s overnight index swap rates rose on Friday, but posted their biggest decline in over two months.

The one-year swap ended at 5.77%, the two-year closed at 5.94%, and the most liquid five-year swap settled at 6.26%.

Similarly, 10-gram gold was sold at Rs389,519 after it increased by Rs4,372, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Thursday, gold price per tola reached Rs449,236 after a gain of Rs11,300 during the day.

The international rate of gold was up by $51 to reach $4,319 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs280 to reach Rs6,939 per tola.

The International Financial Services Centres Authority (IFSCA), the regulator for the international financial services hub, granted the in-principle approval, and Standard Chartered expects to roll out its retail wealth management offerings over the next few months.

“Building on our deep roots in the GIFT City ecosystem, this distribution approval enables us to bring Standard Chartered’s global wealth management capabilities, while supporting GIFT City’s ambition to become a leading international financial services centre,” P D Singh, CEO, India and South Asia, Standard Chartered, said in the statement.

Standard Chartered, the first foreign bank to commence operations in GIFT in 2020, joins HSBC in offering wealth products via the hub. The lender was earliertapped by policymakers to manage U.S. dollar clearances for a foreign currency settlement system set up in the country’s tax-neutral zone.

ICICI Bank sets initial guidance for first dollar bond in nearly 9 years, bankers say

GIFT City is being promoted by the Modi government as a financial centre to rival Singapore and Dubai. In February, the government extended the tax holiday for firms operating there to 20 years and regulations have also been eased.

Earlier in the year, the finance hub also issued its first license to establish a family investment fund, marking a significant step in managing private wealth within the financial hub.

Similarly, 10-gram gold was sold at Rs385,147 after it increased by Rs9,688, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Wednesday, gold price per tola reached Rs437,936 after a gain of Rs10,000 during the day.

The international rate of gold was up by $113 to reach $4,268 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs35 to reach Rs6,659 per tola.

Similarly, 10-gram gold was sold at Rs375,459 after it increased by Rs8,573, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Tuesday, gold price per tola reached Rs427,936 after a decline of Rs500 during the day.

The international rate of gold was up by $100 to reach $4,155 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs273 to reach Rs6,624 per tola.

The benchmark Indian 6.94% 2036 bond yield was at 6.7807% as of 9:40 a.m. IST, after closing at 6.8152% on Tuesday. The policy decision is due at 10:00 a.m. IST.

The RBI is widely expected to keep its key interest rate unchanged, according to a Reuters poll, with most economists not anticipating a hike in 2026- a decision that would diverge from many of its global peers in recent days.

Inflation projections hold the key, after retail inflation accelerated to 4.38% in June, above the RBI’s 4% target. The RBI had projected average retail inflation at 4.2% for April-June, but the actual reading has undershot by almost 30 bps.

“Inflation projection could be the deciding factor on whether the policy is tilting towards the dovish or hawkish side,” trader with a state-run bank said.

“Either they will have to reduce the annual projection or raise their quarterly forecasts.”

OIL FALL

Benchmark Brent crude tumbled 5.2% on Tuesday, adding to its more-than-7% fall on Monday, and was trading 1.2% down in Asian hours at $78.40 per barrel.

Oil prices crashed after comments by Qatari and U.S. officials raised hopes for a diplomatic resolution to the Iran war, which could improve oil flows through the Strait of Hormuz.

India is a large importer of crude and a plunge in prices improves the outlook for inflation as well as the current account deficit.

Rates

India’s overnight index swap rates nosedive in early trading, as a drop in oil prices bodes well for inflation and interest rates.

The one-year swap rate was down 6 bps at 5.81%, while the five-year OIS rate pummelled 8 bps to 6.28%. The two-year rate was not yet

traded.

The benchmark 10-year JGB yield fell 3.5 basis points (bps) to 2.81%. The five-year yield fell 3 bps to 2.05%. Yields move inversely to bond prices.

Interest rate-sensitive two-year U.S. Treasury yields fell to a two-week low on Tuesday as oil prices tumbled on hopes for a deal to end the Iran war, prompting traders to reprice for lower odds of a Federal Reserve interest rate hike in September.

“Investors bought back bonds after the yields rose sharply in the previous session after a weak 10-year bond auction,” said Eiichiro Miura, senior general manager of investments at Nissay Asset Management.

The two-year yield, inched down 0.5 bp to 1.56% after rising to 1.57% in early trade, matching the highest level in May 1995 marked in the previous session.

JGB yields rise as inflation, fiscal concerns mount

The two-year bond yield, which reflects the Bank of Japan’s policy, is under upward pressure because the market expects an interest rate hike at a faster pace after last week’s joint intervention by Washington and Tokyo to buy the Japanese yen, Miura said.

“The intervention to shore up the yen raised bets for faster-paced interest rate hikes. The market expects the next hike as early as September, and there could be another one in December,” Miura said.

Swap rates indicate an 86.6% chance for the BOJ to raise its policy rate by 25 basis points to 1% in October.

The 20-year JGB yield fell 2 bps to 3.685%. The 30-year yield slipped 2 bps to 3.97%. The yield on the 40-year JGB fell 1.5 bps to 4.01%.

UPI, one of the world’s largest real-time payments networks, processed 23.6 billion transactions worth 29.9 trillion rupees ($313.5 billion) in July, according to official data. Walmart’s PhonePe and Alphabet’s Google Pay dominate payments via UPI.

Industry executives have long argued that growth in digital payments has become harder to sustain because payment firms earn no fee on UPI transactions, limiting their ability to invest in the ecosystem.

An amendment to India’s Payment and Settlement Systems Act, tabled in parliament by Finance Minister Nirmala Sitharaman, would allow the introduction of a merchant discount rate (MDR) on digital payments, according to industry and regulatory sources.

Indian payments firms oppose one-click UPI checkout proposal, citing competition risks

The sources said the change creates a legal basis for charging an MDR, but no decision has yet been made on the level of fees or where they would apply.

The sources declined to be identified because they were not authorised to speak to the media. India’s finance ministry, central bank and national payments authority did not immediately respond to requests for comment.

An MDR is a fee paid by merchants to banks and payments service providers for processing digital transactions. While credit cards in India typically attract an MDR of about 1.5% and debit cards up to 0.9%, UPI transactions are currently free for merchants.

Two approaches being considered

Policymakers are considering two broad options, according to two sources with direct knowledge of the matter: charging an MDR on transactions above a specified threshold or levying fees based on a merchant’s annual turnover.

One proposal would apply charges only to large merchants while keeping UPI payments free for consumers and small businesses, the sources said.

The government is considering a proposal to impose an MDR of 0.3% to 0.5% on transactions above 2,000 rupees ($20.97) for merchants with annual turnover exceeding 15 million rupees, according to a government source.

A report by Jefferies on Tuesday said transactions above 2,000 rupees account for just 4% of merchant payment volumes but about 67% of transaction value.

The brokerage estimated such a move could create a revenue pool of 50 billion to 100 billion rupees for the payments industry and benefit companies including Paytm and Pine Labs.

The benchmark 6.94% 2036 bond yield settled at 6.8152%, versus Monday’s close of 6.8343%. Bond yields move inversely to prices.

The RBI is widely expected to keep its key policy rate unchanged on Wednesday, a Reuters poll showed. Traders will watch for any guidance on liquidity and revisions to RBI’s economic forecasts.

“We do not forecast a rate hike at the August meeting, as the RBI may prefer to see firmer inflation prints before responding, and may also avoid making changes during the live FCNR(B) period,” HSBC economists wrote in a note.

The RBI said last week it received $36.7 billion via Foreign Currency Non-Resident deposits raised by banks.

Lenders are permitted to swap these deposits with the central bank under a zero-cost hedging facility open until the end of September, which in turn creates rupee liquidity.

Aided by the rising FCNR(B) inflows and government spending, India’s liquidity surplus rose to 2.44 trillion rupees on Monday, its highest in nearly 12 weeks.

Banks were seen parking some of this liquidity boost in short-term notes in the weekly state debt auction, leading to sharply lower cut off yields in the 4-year and 6-year notes.

Still, overall sentiment remained cautious as Brent crude futures rose over 2% to $85.5 in Asian trade, reversing some part of a 7% drop in the previous session.

An attack on a vessel near the Strait of Hormuz and a rebound in oil prices on Tuesday underscored doubts that the U.S.-Iran war was nearing a resolution, as Tehran pushed back against President Donald Trump’s assertion that talks were under way.

Rates

India’s overnight index swap rates seesawed ahead of the policy outcome.

The one-year swap rate ended at 5.8675%, while the two-year rate wrapped the session at 6.0575%. The five-year OIS rate settled at

6.3550%.

All rates fell about 1 basis point.

The benchmark Indian 6.94% 2036 bond yield ended flat at 6.8343%, after seesawing between 6.83% and 6.89% during the day.

Bloomberg Index Services announced late on Friday that it had deferred the inclusion of Indian bonds in its flagship Global Aggregate Index, disappointing traders who were betting on the inclusion for steady foreign inflows.

Brent crude futures fell more than 7% to $83.5 in Asian trade, as hopes of a peace deal in the Middle East grew after Trump’s latest decision to hold back from military action.

Still, traders stayed cautious ahead of the Reserve Bank of India’s policy decision this week, holding off positions, with some investors also parking excess funds in Treasury bills.

The RBI is widely expected to keep its key interest rate unchanged on Wednesday, according to a Reuters poll.

Index snub to test Indian bonds; rupee, RBI policy and US-Iran war in focus

“Whether the MPC needs to raise rates in the second half of FY27 to keep real rates positive will be closely watched,” said Alok Sharma, head of treasury at ICBC, Mumbai. “As long as oil remains below $100 a barrel, the case for a rate hike appears limited.”

Focus will also be on whether foreign inflows sustain after the Bloomberg index snub, traders said.

Foreign investors net sold bonds under the fully accessible route worth 54 billion rupees ($566.16 million) in the last six sessions.

Separately, the RBI received inflows worth nearly $41 billion till the end of July, under its schemes announced in June, which is supporting demand for bonds, traders said.

Rates

India’s overnight index swap rates eased.

The one-year swap rate fell 4 bps to 5.88%, while the two-year rate pared 3.75 bps to 6.07%. The five-year OIS rate ended at 6.3650%, down 4 bps.

The proposed change comes as the country faces significant foreign outflows, prompting the government to take measures to attract overseas investors by easing access. Investors have long complained about aggressive tax administration in India.

The government described the new rules as being framed “in order to promote fund management activity and provide tax certainty.”

An email query sent to India’s finance ministry was not answered immediately.

Under the existing rules, an offshore fund must maintain a minimum corpus of 1 billion Indian rupees ($10.49 million), have at least 20 investors, and cap any single investor’s contribution at 25% in order to be shielded from Indian tax. Funds that fail to meet these conditions risk having their India-sourced profits taxed at rates of up to 38%.

The new bill proposes removing all minimum size and diversification requirements under the safe harbour rules, meaning offshore funds — regardless of their asset base or investor concentration — could use Indian fund managers without triggering a tax liability, provided the bill is passed by parliament.

India says no proposal to offer long-term tax relief for domestic equity investors

“By replacing a highly prescriptive regime with a far simpler substance-based framework, the government has substantially reduced the risk of offshore funds being regarded as having a ‘business connection’ in India — and thus taxable — merely because their investment manager is located here,” said Girish Vanvari, founding partner of Transaction Square, a

business and tax advisory firm in India.

The proposed rules have retained some safeguards such as not more than 5% of the fund’s assets can be from domestic investors, and the fund cannot control business in India to be exempt from Indian tax exposure.

Nehal Sampat, a partner at PricewaterhouseCoopers, said offshore funds had previously struggled to comply with the safe harbour conditions when appointing onshore managers.

“This is a significant ease-of-doing-business measure, and it will provide a fillip to offshore funds to hire onshore managers,” he said.

Similarly, 10-gram gold was sold at Rs367,314 after it increased by Rs1,457, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Saturday, gold price per tola reached Rs426,736 after a decline of Rs3,700 during the day.

The international rate of gold was up by $17 to reach $4,060 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs54 to reach Rs6,291 per tola.

The yield on the benchmark 6.94% 2036 bond ended at 6.8343% on Friday, up 2 basis points on the day. The 10-year yield had declined more than 28 basis points for three straight months till June before rising about 8 bps in July.

Bond yields move inversely to prices.

A fragile U.S.-Iran peace deal fell apart this month, with the war embroiling more countries across the Gulf, and shipping disruptions widening to other key oil chokepoints.

Brent crude futures were 22% higher in July, their biggest monthly surge since March, while the 10-year U.S. yield also gained about 25 basis points.

For India, crude oil remains the single most important external macro variable, Axis Mutual Fund said in a note.

India bonds slip on Fed uncertainty, war worries

Towards the month-end, foreign investors also began dumping Indian government bonds, rattled by the oil price surge and the absence of any announcement on India’s inclusion into Bloomberg’s global bond index.

Attention is now on the Reserve Bank of India’s monetary policy decision on Wednesday, where it is widely expected to keep its key interest rate unchanged.

“We expect the MPC to retain a cautious tone on the outlook, particularly around El Niño-related weather risks and the still-elevated uncertainty from Middle East geopolitical tensions,” Goldman Sachs said.

The decision comes after the Federal Reserve held interest rates on Wednesday, though Chair Kevin Warsh’s inflation-focused commentary did not give clear guidance on the future rate path.

Inflows from RBI’s June policy measures, however, offered some support, as the central bank has received about $32 billion of inflows.

Rates

India’s overnight index swap rates also jumped in tandem with bond yields, posting their biggest surge since March.

This month, the one-year swap rate rose 16 bps, two-year swap rate jumped 21.5 bps and the five-year OIS rate climbed 23.5 bps.

Inclusion in the index typically leads to increased foreign inflows into the debt market and helps boost the country’s currency — the Indian rupee has depreciated 5.5% so far this year.

Bloomberg Index Services Ltd (BISL) said it will continue to assess Indian government bonds for inclusion in the index.

“BISL believes the Indian government bond market continues to make meaningful progress toward meeting the standards expected for inclusion in the Bloomberg Global Aggregate Index,” it said in a statement.

“However, given the significance of recent market enhancements and the importance of ensuring they are fully reflected in day-to-day market practice, BISL believes  additional time is warranted for these developments to become more firmly established before making a decision,” the statement said.

In June, New Delhi scrapped taxes on interest earned and capital gains on government securities, effective April 1.

Before the change, foreign investors were subjected to a 12.5% long-term capital gains tax on bonds held for more than 12 months, and a 20% withholding tax on interest earned from government bonds.

The Reserve Bank of India also broadened the pool of securities available for foreign investors without any investment limits by including 15-year, 30-year and 40-year bonds.

The changes brought in $6.8 billion in foreign flows into Indian government bonds, with positions being pared in the last few days from a peak of $7.5 billion in inflows.

Bloomberg’s decision to defer the immediate inclusion of Indian bonds could lead to more selling and push up bond yields.

“This comes as a big negative surprise and the 10-year bond yield could touch 6.90% on Monday, and even a test of above 6.90% levels is possible before the RBI policy decision,” said VRC Reddy, treasury head at Karur Vysya Bank.

The RBI is expected to keep its key interest rate unchanged at its policy meeting on August 5.

Reddy also expects the local currency to drop in Monday’s trading session, but said the extent of the decline will depend on the pace of intervention from the central bank.

The Indian rupee ended 0.3% higher at 95.38 against the dollar on Friday, while the 10-year benchmark 6.94% 2036 bond yield ended at 6.8343%, up for a third week.

Similarly, 10-gram gold was sold at Rs369,029 after it increased by Rs2,572, according to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

On Thursday, gold price per tola reached Rs427,436 after an increase of Rs1,000 during the day.

The international rate of gold was up by $30 to reach $4,080 per ounce (with a premium of $20).

Meanwhile, the price of silver increased by Rs79 to reach Rs6,294 per tola.

The benchmark Indian 6.94% 2036 bond yield settled at 6.8132%, compared with 6.7964% on Wednesday. It has risen four basis points over three sessions through Thursday.

The 10-year Treasury yield was up 8 bps since Tuesday at 4.68%.

“Geopolitical risks and higher U.S. treasury yields weighed on bonds today,” said Kruti Chheta, a Mumbai-based fund manager and fixed income analyst at Mirae Asset Investment Managers India.

The benchmark brent crude seesawed during the day, hitting a high of $93 per barrel before fallingto trade at around $90 per barrel as of 5:00 p.m. IST.

A drone strike on gas vessels in Egypt’s Mediterranean port of Damietta signalled a potential new front in the U.S.-Iran war, raising the prospect of threats to navigation through the Suez Canal, the last remaining safe export route for Saudi oil.

India is highly sensitive to oil prices as higher crude can simultaneously pressure inflation, the fiscal balance, current account and the rupee.

Uncertainty around the U.S. Fed’s rate path added to the pressure.

The Fed held rates steady on Wednesday, but three of its 12 voting members favoured a hike, while Chair Kevin Warsh did not offer a clear guidance on the policy path.

However, the fall was capped by rising flows from Reserve Bank of India’s measures to attract dollar inflows, traders said. The steps, announced in June, have brought in close to $32 billion into the country, RBI Governor Sanjay Malhotra said earlier this week.

Traders now await the central bank’s policy decision, due on August 5, where it is widely expected to keep its key interest rate unchanged, according to a Reuters poll of economists.

Rates

India’s overnight index swap rates ended mixed as traders searched for fresh cues.

The one-year rate was down 1 bp at 5.92%, while the two-year rate was flat at 6.12%. The five-year rate rose 1.5 bps to 6.42%.