India’s bonds completed the worst week in four months on concern demand from banks will slow after the central bank cut their debt-investment requirements.
The Reserve Bank of India lowered the proportion of deposits lenders must hold in fixed-income securities this week to 23 percent from 24 percent with effect Aug. 11, the first reduction since 2010. The monetary authority also left the repurchase rate unchanged at 8 percent, while increasing its inflation forecast for the year through March 2013 to 7 percent from 6.5 percent.
“The bond-reserve ratio reduction has hurt demand,” said R.S. Chauhan, Mumbai-based chief dealer of currencies and fixed- income at State Bank of Bikaner & Jaipur. (SBBJ) “The revision of inflationary expectations has also reduced the scope for any immediate monetary-policy easing.”
The yield on the 8.15 percent securities due June 2022 rose 14 basis points, or 0.14 percentage point, this week to 8.26 percent in Mumbai, according to the central bank’s trading system. The rate was rose four basis points today.
Reserve Bank Governor Duvvuri Subbarao last cut the repo rate by 50 basis points to 8 percent in April, after raising it by a record 375 basis points through 2010 and 2011.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose 12 basis points this week to 7.76 percent, according to data compiled by Bloomberg. The rate was little changed today.
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