Bloomberg News

India’s Bonds Decline a Fifth Day as RBI Rate Cut Seen Unlikely

July 30, 2012

India’s 10-year bonds dropped for a fifth day, the longest losing streak this month, as economists predicted the central bank will leave interest rates unchanged tomorrow.

The Reserve Bank of India will hold the repurchase rate at 8 percent, according to 31 of 34 analysts in a Bloomberg survey. Three expect a 25 basis point cut. Monsoon rains are likely to be 21 percent below normal in the two months through July, the state weather forecaster said on its website yesterday. Inflation in Asia’s third-largest economy held above 7 percent for a fifth month in June, official data show.

“The RBI may refrain from cutting rates due to inflationary concerns,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. (IDBI) “Poor rains may add to price pressures.”

The yield on the 8.15 percent notes due June 2022 rose three basis points to 8.15 percent in Mumbai, according to the central bank’s trading system. The rate is the highest since July 10.

The pace of price gains is “way above” the RBI’s threshold level of 5 percent, Governor Duvvuri Subbarao said on July 16.

The central bank cut the repurchase rate by 50 basis points to 8 percent in April, after raising it by a record 375 basis points through 2010 and 2011. Subbarao held the repo rate at 8 percent at a meeting on June 18.

Global Slowdown

Gross domestic product climbed 5.3 percent in the three months through March, the least since 2003, hurt by a moderation in investment and a global slowdown as the impact of Europe’s turmoil fanned through the world economy.

The economy may expand 6.5 percent in the fiscal year through March 2013, based on a compilation of forecasts from other organizations, the Reserve Bank of India said in a report today. An April survey projected 7.2 percent growth.

“Growth risks in 2012-2013 have been amplified by decelerating global trade and domestic supply constraints,” today’s report said. “On the other hand, persistent inflation, limits the space for monetary policy to revive growth.”

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose two basis points to 7.66 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: James Regan at jregan19@bloomberg.net


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