India’s benchmark bond yields were near the lowest level in seven weeks on speculation a slowing economy and sliding oil prices will spur the central bank to cut borrowing costs.
Gross domestic product rose 5.3 percent in the first quarter, the least in nine years, according to government data published last week. Brent crude, the benchmark for most of the nation’s oil imports, traded at $99.37 per barrel after sliding below $100 for the first time since October last week. The Reserve Bank of India has room to cut interest rates, Deputy Governor Subir Gokarn said on June 4.
“A rate cut now looks highly likely to support growth,” said Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings Inc. “Lower oil prices should also give some comfort on the inflation front.”
The yield on the government’s 8.79 percent bonds due November 2021 was little changed at 8.35 percent as of 9:38 a.m. in Mumbai, according to the central bank’s trading system. It touched 8.34 percent yesterday, the lowest level since April 17.
Rajpal predicts the central bank will cut the repurchase rate by 25 basis points to 7.75 percent at this month’s policy review on June 18. The monetary authority last cut the repurchase rate by 50 basis points to 8 percent in April after raising borrowing costs 13 times between March 2010 and October 2011.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose three basis points to 7.66 percent, according to data compiled by Bloomberg.
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