Liquidity remained mostly comfortable

The borrowing rate remained mostly below the repo rate during the week as liquidity remained comfortable. The call money rate settled at 6.35% on May 20 as against 6.15% on May 13. Funds infused through term repo auctions by the central bank contributed to the fall in the call money rate. The RBI conducted three auctions – two of 14-day duration and one of 28-day duration – infusing a total of Rs 57,000 crore into the banking system. The call money rate rose briefly in the first session of the week owing to outflows towards payment of gilts purchased in the previous week's auction.

Gilts ended the week slightly higher

Government bond prices declined, with the yield of the 10-year benchmark 7.59% 2026 paper settling at 7.48% on May 20 as against 7.45% on May 13. Prices remained locked in a tight range for most of the week in the absence of strong triggers. Weakness in the rupee's exchange rate and the outcome of the auction for foreign institutional investment limits in sovereign debt lent negative cues. Prices fell as the minutes of the US Federal Open Market Committee's (FOMC's) April policy meeting led to investors scaling up expectation of a June rate hike by the US central bank. Bonds also dipped tracking a rise in global crude oil prices and US benchmark treasury yields. However, expectation of additional open market bond purchase announcements from the RBI provided support to prices and prevented a further fall.