Bloomberg News

Indian Bonds Decline as Central Bank May Boost Rates Next Week

October 19, 2011

Oct. 19 (Bloomberg) -- India’s 10-year bonds declined for the first time in three days on speculation the central bank will increase borrowing costs for the seventh time this year at its policy review next week.

The Reserve Bank of India will lift the repurchase rate by 25 basis points to 8.50 percent on Oct. 25, according to 10 of 14 economists surveyed by Bloomberg. Four predict no change. Inflation has stayed above 9 percent for 10 months through September. The pace of price gains is above the central bank’s “comfort level,” Governor Duvvuri Subbarao said last week.

“The market consensus is there may be one more rate hike,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “Investors may refrain from adding to their holdings as inflation is still high.”

The yield on the 7.8 percent notes due April 2021 rose three basis points, or 0.03 percentage point, to 8.78 percent in Mumbai, according to the central bank’s trading system. The benchmark wholesale-price index rose 9.72 percent from a year earlier in September, according to government data.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose two basis points to 8.23 percent, according to data compiled by Bloomberg.

--With assistance from Manish Modi in New Delhi. Editors: Andrew Janes, Anil Varma

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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