Bloomberg News

Indian Bonds Headed for Worst Week in Two Months on Rate Outlook

November 02, 2012

India’s 10-year government bonds headed for their worst week in more than two months on speculation faster inflation will prompt the central bank to delay any reduction in interest rates.

The Reserve Bank of India refrained from cutting its repurchase rate for a fourth straight review this week and raised its inflation forecast. The repo rate has been held at 8 percent since April. The pace of price gains will be 7.5 percent by March 2013, according to the monetary authority, compared with an earlier projection of 7 percent and Governor Duvvuri Subbarao’s “comfort level” of 5 percent.

“With inflation remaining above the RBI’s comfort zone, we push back the timing of the next rate cut from December to March,” Tushar Poddar, an economist in Mumbai at Goldman Sachs Group Inc., wrote in a research note today.

The yield on the benchmark 8.15 percent bonds due June 2022 rose six basis points, or 0.06 percentage point, this week to 8.19 percent as of 9:46 a.m. in Mumbai, according to the central bank’s trading system. It was little changed today.

The benchmark wholesale-price index rose 7.81 percent in September, the most since November 2011, official data show. Consumer prices rose 1.9 percent in China the same month.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, climbed 17 basis points this week to 7.76 percent, data compiled by Bloomberg show. It rose one percent today.

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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