India’s 10-year bonds gained the most in three weeks on speculation the central bank will ease monetary policy to support a slowing economy.
A government report today showed industrial output rose 2.4 percent in May from a year earlier, compared with an average gain of 2.6 percent in the previous 12 months. Inflation probably accelerated to 7.61 percent in June from a year earlier, compared with 7.55 percent in May, according to a Bloomberg survey before the data is published next week.
“It’s a question of time before the RBI cuts rates again,” said Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings Inc. “The inflation data next week will be keenly watched by investors.”
The yield on the 8.15 percent notes due June 2022 declined four basis points, or 0.04 percentage point, to 8.10 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level since June 25. Nomura predicts the central bank will cut the repurchase rate by 50 basis points this year.
The Reserve Bank of India, which cut its repurchase rate last quarter for the first time since 2009, will review its policy on July 31. The monetary authority reduced its repurchase rate by 50 basis points to 8 percent in April, after raising it by a record 375 basis points through 2010 and 2011. Governor Duvvuri Subbarao held the repo rate at 8 percent at a meeting on June 18.
The economy expanded 5.3 percent in the three months through March, the slowest pace in nine years.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell 13 basis points to 7.58 percent, the lowest level in almost a month, according to data compiled by Bloomberg.
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