India’s benchmark bond completed its first weekly advance this month on speculation slowing economic growth will prompt the central bank to cut interest rates next week.
The government’s 10-year debt rallied the most in more than two months yesterday after official data showed factory output rose 4.1 percent in February from a year earlier, less than the 6.7 percent median estimate in a Bloomberg News survey of economists. Seventeen of 22 economists in a separate Bloomberg survey predict the repurchase rate will be cut by 25 basis points to 8.25 percent on April 17. Five expect no change, while two forecast a reduction of 50 basis points.
“The economic growth scenario looks grim,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “That has strengthened expectations of a rate cut.”
The yield on the 8.79 percent bonds due November 2021 fell 22 basis points, or 0.22 percentage point, to 8.47 percent in Mumbai, according to the central bank’s trading system. The yield rose three basis points today. Local financial markets were closed for public holidays on April 5 and 6.
The Reserve Bank of India, which raised its benchmark rate by 3.75 percentage points from March 2010 through October 2011, signaled a readiness to lower borrowing costs to bolster growth at its last policy review on March 15.
Deutsche Bank AG predicted India’s inflation will slow to 6.6 percent in March from 6.95 percent in February. Lower inflation and “persisting weak” economic momentum will spur the central bank to cut the repurchase rate next week and in June, analysts Taimur Baig and Kaushik Das wrote in a note.
The wholesale price index may rise 6.65 percent in March, according to a Bloomberg News survey before the data is published on April 16.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell nine basis points to 7.93 percent this week, data compiled by Bloomberg show. The contracts dropped four basis points today.
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