Oct. 21 (Bloomberg) -- An employee strike at the Reserve Bank of India shut bond trading in Mumbai, where yields have swung between a seven-year high and seven-month low since July.

About 25,000 employees of the central bank walked off their jobs to demand higher pensions, a day after Governor Duvvuri Subbarao slashed the benchmark interest rate for the first time in four years to shield Asia's third-biggest economy from the global financial crisis.

The strike barred traders at primary dealers and banks in Mumbai from betting on further interest rate cuts after the central bank slashed borrowing costs for the first time since 2004 yesterday. Fluctuations in India's bond yields this month were the widest in more than five years as the central bank took steps to ease a liquidity crunch. Subbarao will review his monetary policy on Oct. 24 in Mumbai.

``It's pretty unusual timing'' for the strike, said Rupa Rege Nitsure, chief economist at state-owned Bank of Baroda in Mumbai. ``It is depriving participants of a trading opportunity as speculation intensifies on what the central bank will say after yesterday's rate cut.''

The central bank said on Oct. 18. it will ``endeavor'' to maintain normal services and advised customers to complete their transactions a day in advance as the ``illegal'' strike disrupts payment and settlement systems. Reserve Bank of India spokeswoman Alpana Killawala declined to comment today.

Yields Slide

The strike at the central bank's 20 offices across the nation may affect check clearing operations, said Samir Ghosh, general secretary of the All India Reserve Bank of India Employees' Association. India's currency and stock markets were unaffected by the stoppage.

Benchmark 10-year bond yields have slid more than 1.5 percentage points from a seven-year high of 9.48 percent touched in July after crude oil prices slumped from a record, easing inflation concern, and the central bank freed up cash to drive down overnight borrowing costs.

The Reserve Bank boosted cash in the financial system by as much as 1 trillion rupees ($2.05 billion) starting Oct. 11 by cutting the amount of money lenders are required to keep as reserves. The monetary authority also cut its overnight lending rate, or repurchase rate, yesterday by 1 percentage point to 8 percent.

`Good Time'

``It's a good time to discuss at length what can be expected'' from the monetary policy review on Oct. 24, said Srinivasa Raghavan, head of treasury in Mumbai at IDBI Gilts Ltd., a primary dealer that underwrites government debt sales.

India's economic expansion that averaged almost 9 percent in the past five years through March 31 stands threatened by the global credit-market crisis. Local rates banks charge each other to lend overnight fell to 5.5 percent today, the lowest level since Aug. 29, after surging to a 19-month high of 23 percent on Oct. 10.

A measure of the Indian 10-year yield's volatility climbed as high as 31 percent on Oct. 14, the most since March 2003, before falling to 26 percent, according to data compiled by Bloomberg.

Traded volumes in September rose 14 percent to 4.2 trillion rupees from August, according to Clearing Corp. of India Ltd., which guarantees government bond deals. About 2.3 trillion rupees of securities changed hands this month.

`Temporary Slowdown'

The reduction in interest rates will ``support economic activity and investment,'' Prime Minister Manmohan Singh told lawmakers in New Delhi yesterday, while asking the nation to prepare for a ``temporary slowdown'' this year.

Meantime, traders spent the day watching India's record win in a cricket test match as the nation inflicted Australia's first defeat overseas in three years.

``Employees watched cricket, which was a pleasure as India beat Australia after a long time,'' said S. Ananthanarayan, chief trader at Kotak Mahindra Bank Ltd. in Mumbai, which trades directly with the central bank to underwrite government debt sales. ``Dealing room discussions covered a range of subjects that didn't include markets.''

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.

Last Updated: October 21, 2008 06:06 EDT