Bloomberg News

India Swaps Reach March High as Rupee Dents Rate-Cut Outlook

June 27, 2013

India’s interest-rate swaps advanced to the highest level since March on speculation a plunge in the rupee will stoke inflation and reduce the central bank’s scope to cut borrowing costs.

The Indian currency touched a record 60.765 per dollar yesterday as investors favored the dollar after U.S. economic data topped estimates, bolstering the case for the Federal Reserve to scale back asset purchases that have fueled fund flows to emerging markets. The Reserve Bank of India kept the repurchase rate unchanged at 7.25 percent on June 17 after cutting it three times this year, citing inflation risks.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose six basis points, or 0.06 percentage point, to 7.6 percent at 10:07 a.m. in Mumbai, data compiled by Bloomberg show. That’s the highest level since March 4.

“Interest-rate cuts may have to be postponed due to the currency’s slide,” said Srinivasa Raghavan, the Mumbai-based executive vice president of treasury at Dhanalaxmi Bank Ltd. “There are reasons, both global and local, that are pressurizing the rupee.”

The rupee has fallen 6.7 percent this month, the worst performer among the 11 most-traded Asian currencies tracked by Bloomberg. Fed Chairman Ben S. Bernanke said June 19 that $85 billion of monthly debt buying could be tapered this year and ended in 2014 if the U.S. economy performs in line with central bank estimates.

Policy Stance

India’s wholesale prices rose 4.7 percent in May from a year earlier, the least since 2009, official data show. The monetary-policy stance will be determined by the evolution of economic growth, inflation and the balance of payments in the months ahead, the central bank said in its June 17 statement, adding that “it is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth.”

The yield on the benchmark bonds due June 2022 was little changed at 7.79 percent, according to the central bank’s trading system. The rate is at the highest level since April 17.

To contact the reporter on this story: Shikhar Balwani in Mumbai at

To contact the editor responsible for this story: James Regan at

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