Bloomberg News

India’s Bonds Set for Best Month Since May 2010 on Rate Outlook

January 31, 2012

Jan. 31 (Bloomberg) -- India’s 10-year bonds headed for the best month since May 2010 on speculation the central bank will reduce borrowing costs to spur economic growth.

The Reserve Bank of India, which has boosted the repurchase rate 13 times in the past two years to 8.5 percent, will cut it by 50 basis points to 8 percent by June 30, according to six of eight strategists in a Bloomberg survey. Odds that the monetary authority will purchase more debt are also building, according to J. Moses Harding at IndusInd Bank Ltd.

“The RBI may cut the repurchase rate and reserve requirements in March,” said Harding, the Mumbai-based executive vice president at the bank. “Open-market buying of bonds is also on the cards to ease the liquidity crunch.”

The yield on the 8.79 percent notes due November 2021 fell 26 basis points, or 0.26 percentage point, this month to 8.31 percent as of 10:08 a.m. in Mumbai, according to the central bank’s trading system. The rate rose two basis points today.

Harding predicts the Reserve Bank will decrease the cash- reserve ratio by 50 basis points and the repurchase rate by 25 basis points in March, pushing 10-year bond yields toward 8 percent.

Last week, the RBI cut the reserve ratio by 50 basis points to 5.5 percent, the first time since 2009, while reducing India’s growth forecast to 7 percent for the year through March, from a 7.6 percent prediction in October.

India’s monetary authority has bought 719 billion rupees ($14.5 billion) of securities since November to ease a money- market squeeze, according to central bank data.

Lenders borrowed an average 1.1 trillion rupees a day from the central bank to meet shortages in the past three months, up from 471 billion rupees in the prior period, official data show.

--With Assistance from Manish Modi in New Delhi. Editors: Simon Harvey, Sandy Hendry

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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