Bloomberg News

India’s Swaps at One-Month High as Rate-Cut Speculation Dashed

June 11, 2013

India’s interest-rate swaps rose to a one-month high on speculation the rupee’s slump to a record will give the central bank less scope to cut borrowing costs.

Reserve Bank of India Governor Duvvuri Subbarao said last week the balance of payments is under stress and retail inflation is still high. Ten of 18 economists in a Bloomberg survey predict no change in the repurchase rate at a policy review next week. Eight forecast a 25 basis point cut. The RBI reduced the repurchase rate in May, March and January by a combined 75 basis points to 7.25 percent.

“The recent rupee weakness reduces the probability of a rate cut at the June 17 monetary policy meeting,” Barclays Plc analysts including Rohit Arora wrote in a research note today.

The one-year swap, a derivative contract used to guard against fluctuations in funding costs, climbed one basis point, or 0.01 percentage point, to 7.25 percent as of 9:27 a.m. in Mumbai, according to the central bank’s trading system. That is the highest level since May 8.

Swaps have priced in a reduction in interest rates by a total of 50 basis points, according to Barclays. “Should the RBI pause, the next opportunity to cut rates will be July 30, a long time in the current market environment,” it said.

The rupee declined 0.8 percent to 58.5775 per dollar and reached an all-time low of 58.5825. It’s Asia’s worst-performing currency over the past month with a loss of 6.5 percent. The rupee will weaken beyond 60 in a sustained manner, Rajeev Malik, a Singapore-based economist at CLSA Asia-Pacific Markets, said in an e-mail.

The yield on the benchmark 8.15 percent government bonds due June 2022 rose four basis points to 7.53 percent, the highest level since May 13, according to the central bank’s trading system.

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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