Bloomberg News

India Bond Yields Drop Most in 20 Months as RBI May Raise Buying

January 02, 2012

Jan. 2 (Bloomberg) -- India’s 10-year bond yields fell the most in almost 20 months amid speculation the central bank will accelerate debt purchases to boost cash at banks after the government increased its borrowing target to a record.

The Reserve Bank of India resumed open-market purchases of sovereign securities in November and has purchased 412 billion rupees ($7.7 billion) of notes via auctions since then, official data show. Yields at the highest level in almost a month also attracted buyers, said Killol Pandya, the Mumbai-based head of fixed-income investment at Daiwa Asset Management (India) Pvt.

“Expectation is building up that the central bank may take some measures to boost cash to support the borrowing program,” Pandya said.

The yield on the 8.79 percent notes due November 2021 fell 19 basis points, or 0.19 percentage point, to 8.39 percent in Mumbai, according to the central bank’s trading system, the biggest drop in benchmark yields since May 2010. It touched 8.60 percent earlier, the highest level since Dec. 7.

The finance ministry will expand its borrowing program for the year ending March 31 by 400 billion rupees to 5.1 trillion rupees, the central bank said in a statement after the financial markets closed on Dec. 30. Finance Minister Pranab Mukherjee is boosting offerings to finance a budget deficit as the slowest economic growth since 2009 reduces revenue.

Boosting Growth

India’s central bank may reverse its record pace of interest rates increases to boost growth as inflation shows signs of easing, the British Broadcasting Corp. reported, citing Governor Duvvuri Subbarao.

India may also raise 400 billion rupees through a divestment plan, Economic Affairs Secretary R. Gopalan said. The central bank will take more steps to check depreciation in the rupee, Asia’s worst performer last year, he said today.

The rupee dropped 0.5 percent to 53.3075 per dollar today, according to data compiled by Bloomberg. The currency fell for a second day after data published Dec. 30 showed the current- account deficit widened to near a record in the third quarter. The rupee lost 16 percent last year, dropping to a record 54.3050 on Dec. 15.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, dropped three basis points to 7.71 percent, according to data compiled by Bloomberg.

--Editors: Andrew Janes, Ven Ram

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net.

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


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