Bloomberg News

India’s Benchmark Bond Yield at 7-Week Low as RBI May Cut Rates

June 05, 2012

India’s benchmark bonds were little changed, with yields holding at the lowest level in seven weeks, on speculation slowing economic growth will prompt the central bank to cut interest rates this month.

The Reserve Bank of India has more room to cut interest rates after economic growth slowed and oil prices dropped, Deputy Governor Subir Gokarn said yesterday. The nation’s economy expanded 5.3 percent in the first quarter from a year earlier, the least in nine years, according to official data published last week.

“Investors are probably taking a cue from the slump in GDP growth and betting on a rate cut possibility,” said Krishnamurthy Harihar, treasurer at FirstRand Ltd. (FSR) “The decline in international crude prices is also a positive.”

The yield on the government’s 8.79 percent bonds due November 2021 was unchanged at 8.34 percent in Mumbai, according to the central bank’s trading system. That is the lowest level since April 17.

Brent crude oil has dropped 22 percent to $97.81 per barrel since March. India imports about 80 percent of its oil.

The monetary authority last cut the repurchase rate by 50 basis points to 8 percent in April, after increasing borrowing costs 13 times between March 2010 and October 2011. The next rate decision is scheduled for June 18.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, were little changed at 7.63 percent, according to data compiled by Bloomberg.

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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