The Reserve Bank of India (RBI) is expected to ease during the upcoming policy meeting on 29 September. 1y NDOIS is currently pricing in about 75bp of cut in the next 1y. One more cut is expected to materialize early next year. In that sense, the market is currently pricing in a fair amount of easing and there seems to be no catalyst to position in swaps one way or the other.



However, the 10y bonds are expected to rally. Apart from rate cuts, a hike in the FII debt limits for domestic bonds should provide the impetus for bonds to rally. That said, supply-demand dynamics in the last quarter this year will likely.



"We see the INR at Rs66/USD in September given seasonal weakness and global uncertainty. We have also highlighted that the risk premium for aggressive CNY depreciation looks excessive in case of INR", notes BofA Merrill Lynch.