India’s 10-year bond yield held at the lowest level since July 2010 as the slowest inflation in three years added to speculation the central bank will reduce interest rates this month.
The benchmark wholesale-price index rose 7.18 percent in December from a year earlier, the commerce ministry reported yesterday, the least since 2009. The median of 34 estimates in a Bloomberg News survey was for a 7.37 percent gain. Reserve Bank of India Governor Duvvuri Subbarao, who last lowered the repurchase rate by 50 basis points to 8 percent in April, will review monetary policy on Jan. 29.
“With wholesale inflation subdued, we believe the RBI is likely to front-load its policy rate cuts,” analysts at Standard Chartered Plc, including Mumbai-based Anubhuti Sahay, wrote in a research note today. “The downward trend in the inflation trajectory is likely to continue until the third quarter of 2013.”
The yield on the 8.15 percent bonds due June 2022 was little changed at 7.80 percent as of 9:50 a.m. in Mumbai, according to the central bank’s trading system. It fell seven basis points, or 0.07 percentage point, yesterday in the biggest decline since August.
Standard Chartered predicts the RBI will cut its benchmark rate by 100 basis points in 2013. Investors should buy 10-year bonds with a yield target of 7.50 percent, the bank recommends.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.50 percent, data compiled by Bloomberg show.
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