Bloomberg News

India’s Bond Yields Fall to Two-Week Low as RBI May Reduce Rates

April 11, 2012

India’s 10-year bonds rose for a third day, pushing yields to a two-week low, on speculation the central bank will cut borrowing costs next week for the first time in three years.

Ten of fifteen economists in a Bloomberg News survey predict the repurchase rate will be cut 25 basis points to 8.25 percent at the Reserve Bank of India’s policy review on April 17. Three forecast no change while two forecast a reduction of 50 basis points. Data may show tomorrow that annual gains in factory output slowed to 6.7 percent in February from 6.8 percent the previous month, according to a Bloomberg survey of economists.

“There is a possibility of a 25-basis-point cut in the repo rate,” said Arvind Chari, a senior fund manager at Quantum Asset Management Co. Pvt. in Mumbai. “Growth concerns probably would have to be addressed.”

The yield on the 8.79 percent bonds due November 2021 fell five basis points, or 0.05 percentage point, to 8.55 percent in Mumbai, according to the central bank’s trading system. The rate is the lowest since March 27.

The Reserve Bank of India boosted the repurchase rate 13 times between March 2010 and October 2011. Ten of the fifteen economists in the Bloomberg survey predict the cash reserve ratio will be left unchanged at 4.75 percent while the remainder, including Morgan Stanley, forecast a reduction.

The reserve requirement may be cut by 75 to 100 basis points even before the next policy review, Morgan Stanley analysts Chetan Ahya and Upasana Chachra wrote in a note yesterday. The RBI has lowered the cash reserve ratio by 125 basis points this year.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose four basis points to 7.99 percent, data compiled by Bloomberg show.

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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