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India Bonds Drop for Fifth Day as Subbarao Dashes Rate Cut Hopes

August 16, 2012

India’s bonds fell for a fifth day, driving yields to a two-month high, after central bank Governor Duvvuri Subbarao said high inflation limits the scope for measures to stimulate economic growth.

Wholesale prices rose 6.87 percent in July from a year earlier, data published by the commerce ministry on Aug. 14 showed, the fastest pace among the largest emerging markets. The Reserve Bank of India held its repurchase rate at 8 percent on July 31, while raising its inflation estimate for the fiscal year through March 2013 to 7 percent from 6.5 percent. It will next review borrowing costs on Oct. 30.

“Inflation is still a concern,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. (IDBI) “The central bank may put off any monetary easing until at least October.”

The yield on the 8.15 percent notes due June 2022 rose four basis points, or 0.04 percent, to 8.26 percent in Mumbai, according to the central bank’s trading system, the highest level since June 9.

Inflation was 5.2 percent in Brazil, 1.8 percent in China and 5.6 percent in Russia last month, official figures show.

“Inflation is high, oil prices, though they have come off $100 a barrel, are at elevated levels, the external sector is under stress,” Subbarao said in a speech on Aug. 13. “There is just no space for fiscal or monetary response.”

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, climbed four basis points to 7.83 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at

To contact the editor responsible for this story: James Regan at

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