Bloomberg News

IDBI Federal’s Prabhu Sees India Holding Rates for Six Months

April 17, 2012

Sri Prasad Prabhu, head of fixed- income at IDBI Federal Life Insurance Co., comments on India’s interest rates. The Reserve Bank of India today reduced the repurchase rate to 8 percent from 8.5 percent, an outcome predicted by only three of 25 economists in a Bloomberg News survey. Prabhu spoke in a telephone interview from Mumbai.

“The concerns on growth were higher, which is why there is a larger cut in interest rates. This will address those concerns in one shot.

‘‘The borrowing plan this year is abnormally large and so, as a sop to the market, the rates may have been cut by a larger proportion than expected.

‘‘Inflation concerns are persistent, which have been highlighted in the policy. We will be looking at an 8 percent repurchase rate for a sustained period of time, maybe up to six months. Oil prices and the fiscal situation remain a risk, which is why the central bank will pause on rates.

‘‘The 10-year bond yield may rise to as much as 8.75 percent in the next six months because of the high government borrowing plan.’’

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net


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