Bloomberg News

Indian Swaps Have Biggest Weekly Increase Since 2011 on Rupee

June 21, 2013

India’s one-year interest-rate swaps completed the biggest weekly jump since October 2011 on concern the rupee’s slide to a record low will limit room for the central bank to cut interest rates.

The local currency touched an all-time low of 59.98 per dollar yesterday after the U.S. signaled it may reduce stimulus policies that have boosted fund flows into emerging markets. A weaker rupee increases the cost of imported goods including oil, boosting the risk of faster price increases. The Reserve Bank of India refrained from cutting borrowing costs on June 17 for the first time in four reviews, citing inflation risks.

“The currency’s depreciation is pushing back rate-cut expectations,” Vivek Rajpal, a strategist at Nomura Singapore Ltd., said in a phone interview today. “That is pushing up swap rates.”

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, climbed 21 basis points, or 0.21 percentage point, this week to 7.43 percent in Mumbai, data compiled by Bloomberg show. That is the biggest weekly increase since October 2011. The rate fell three basis points today.

RBI Governor Duvvuri Subbarao held the repurchase rate at 7.25 percent on June 17 after cutting by 75 basis points this year. The RBI will next review policy on July 30. Asia’s third-largest economy grew 5 percent in the year ended March 31, the least in a decade, official data show.

Bonds Decline

Government bonds completed a second weekly decline. The yield on 8.15 percent government bonds due June 2022 rose eight basis points this week to 7.62 percent, according to the central bank’s trading system.

The rate fell two basis points today after the finance ministry auctioned 150 billion rupees ($2.5 billion) of notes due in 2019, 2023, 2030 and 2041 as planned.

Global funds cut holdings of rupee bonds by $3.9 billion this month as the local currency fell. An offering of debt-purchase permits to foreigners was undersubscribed yesterday for the first time since October.

India sold limits worth 392 billion rupees to overseas investors yesterday, compared with a target of 420.22 billion rupees, according to two people familiar with the matter, asking not to be identified as they aren’t authorized to speak to the media.

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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