Bloomberg News

India’s Bonds Have Best Weekly Gain in 20 Months on Inflation

January 06, 2012

Jan. 6 (Bloomberg) -- India’s benchmark 10-year bonds completed the biggest weekly gain since May 2010 on optimism a drop in food prices will help ease inflation further.

An index that includes onions, potatoes and wheat declined in the week to Dec. 24 for the first time in at least 5 1/2 years, the commerce ministry said yesterday, after reporting last month that wholesale prices dropped to the lowest level in a year. The monetary authority purchased 84.71 billion rupees ($1.6 billion) of government notes today, after announcing an increase to its borrowing program in December.

“Softening inflation is encouraging investors to add to their holdings,” said K. Ramanathan, chief investment officer at ING Investment Management Pvt. in Mumbai. “The Reserve Bank of India’s debt purchases are also helping overcome pressure from the large borrowings.”

The yield on the 8.79 percent bonds due November 2021 fell 34 basis points, or 0.34 percentage point, to 8.23 percent this week in Mumbai, according to the central bank’s trading system. The rate fell 10 basis points today.

Reserve Bank Deputy Governor Subir Gokarn reiterated yesterday that India’s cycle of monetary tightening has “peaked” and a reversal will depend on inflation and economic growth. The central bank has boosted borrowings costs 13 times in the past two years.

Wholesale food prices dropped 3.36 percent in the week ended Dec. 24 from a year earlier, the commerce ministry said yesterday. The main inflation gauge data will be issued Jan. 16.

India will increase its record borrowing program for the financial year ending in March by 8.5 percent to 5.1 trillion rupees as it seeks to narrow the budget deficit, the central bank said in a statement on Dec. 30.

The finance ministry raised 140 billion rupees today selling bonds due in 2018, 2021 and 2032, the central bank said in a statement.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell one basis point to 7.73 percent, according to data compiled by Bloomberg.

--Editors: Cherian Thomas

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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