Bloomberg News

India Bond Yields at 3-Year High as Central Bank May Boost Rate

October 21, 2011

Oct. 21 (Bloomberg) -- India’s 10-year bonds fell, pushing yields to a three-year high, on concern accelerating inflation will spur the central bank to boost borrowing costs next week.

The central bank will raise the repurchase rate by 25 basis points to 8.50 percent on Oct. 25, according to 13 of 19 economists surveyed by Bloomberg. Six predict no change. Food inflation accelerated to 10.6 percent in the week ended Oct. 8 from a year earlier, the fastest pace since April, data showed yesterday. Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said yesterday authorities should use interest rates and fiscal measures to curb prices.

“Inflation is still high and the central bank may raise rates by 25 basis points,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. “The local currency’s weakness may also add to pressure on inflation.”

The yield on the 7.8 percent notes due April 2021 rose three basis points, or 0.03 percentage point, to 8.82 percent in Mumbai, according to the central bank’s trading system. The rate was the highest level for a benchmark 10-year bond since August 2008, according to data compiled by Bloomberg.

The rupee weakened past 50 per dollar today for the first time since May 2009. The wholesale-price Index rose 9.72 percent in September from a year earlier after a 9.78 percent increase in August, the most since July 2010, government data show.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose six basis point to 8.32 percent, according to data compiled by Bloomberg.

--With assistance from Manish Modi in New Delhi. Editors: Andrew Janes, Abhay Singh

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

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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