Bloomberg News

India’s Bonds Gain a Second Day as RBI May Halt Rate Increases

November 24, 2011

Nov. 24 (Bloomberg) -- India’s 10-year bonds rose for a second day on speculation Europe’s debt crisis and slowing economic growth will prompt the central bank to stop raising borrowing costs.

Yields dropped to a four-week low as the Reserve Bank of India purchased 94.4 billion rupees ($1.8 billion) of bonds at an open-market auction today to boost cash in the banking system. Factory output in Asia’s third-largest economy grew 1.9 percent in September from a year earlier, the slowest pace in two years, official data showed this month.

“The RBI may stop rate hikes given global conditions and slowing growth,” said K. Ramanathan, chief investment officer at ING Investment Management Pvt. in Mumbai. “The open-market operations will also support bonds.”

The yield on the 8.79 percent bond due November 2021 fell two basis points, or 0.02 percentage point, to 8.79 percent in Mumbai, according to the central bank’s trading system.

The monetary authority has raised benchmark interest rates by 3.75 percentage points since the start of 2010 to curb inflation. The repurchase rate is now 8.50 percent and the next policy review is on Dec. 16.

The central bank may purchase at least 600 billion rupees of bonds this fiscal year through March, in addition to the securities it bought today, supporting demand for government notes, Ramanathan said. Food inflation slowed to 9.01 percent in the week ended Nov. 12, the lowest level in almost four months, from 10.63 percent the previous week, the commerce ministry said in a statement.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was at 8.11 percent, according to data compiled by Bloomberg.

--Editors: Andrew Janes, Anil Varma

To contact the reporter on this story: V Ramakrishnan in Mumbai at

To contact the editor responsible for this story: Sandy Hendry at

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