India’s 10-year bonds rose, pushing the yield to a two-year low, on speculation the central bank will reduce interest rates this quarter to boost growth.
The yield on the 8.15 percent notes due June 2022 fell three basis points, or 0.03 percentage point, to 7.90 percent in Mumbai, the lowest level for a benchmark 10-year security since Dec. 28, 2010, according to the central bank’s trading system.
The Reserve Bank of India will lower the repurchase rate by 50 basis points to 7.5 percent by the end of the first quarter after holding it since April, according to 11 of 20 analysts surveyed by Bloomberg. Seven see a 25 basis point reduction. Credit Suisse AG predicts a 50 basis point decrease at the next review on Jan. 29, and a further 75 basis points of cuts by the end of July, it said in a research note released today.
“If our forecasts are correct, we can look forward to a further rally in local-currency sovereign bonds,” Robert Prior- Wandesforde, a Singapore-based economist at Credit Suisse, wrote in the note. “The 10-year yield is likely to fall to at least as low as 7.5 percent” by mid-year, he predicted.
The government cut its estimate for economic growth in the year through March to as little as 5.7 percent, the least in a decade, on Dec. 17. Reserve Bank of India Governor Duvvuri Subbarao said a day later that policy makers’ focus needs to shift toward supporting the economy from curbing inflation.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.60 percent, data compiled by Bloomberg show.
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