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India’s Bonds Complete Monthly Decline Ahead of Policy Review

India’s 10-year bonds completed a monthly decline on speculation investors refrained from adding to their holdings before the central bank’s monetary policy review next week.

The Reserve Bank of India may raise its repurchase auction rate by 25 basis points, or 0.25 percentage point, to 7 percent on May 3, according to 17 of 22 economists surveyed by Bloomberg. Five forecast a 50 basis-point increase. Inflation data published this month showed price increases in March exceeded the central bank’s estimate by almost one percentage point.

“Interest rates will have to go up again and I expect a 25 basis-point rise in the upcoming policy,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand Ltd. “Inflation still remains a concern.”

The yield on the 7.80 percent note due April 2021, the most-traded government security, was 8.14 percent at the 5 p.m. close in Mumbai, according to the central bank’s trading system. The rate has increased 34 basis points since the bonds were sold on April 8. Yields rose three basis points today.

The wholesale price index rose 8.98 percent in March from a year earlier, higher than the central bank’s prediction of 8 percent.

The central bank has increased borrowing costs eight times since March 2010.

The monetary authority sold 60 billion rupees ($1.4 billion) of 77-day cash management bills today, the Reserve Bank said in an e-mailed statement.

India’s government plans to borrow more funds through cash management bills in the first quarter of the financial year that began April 1, a finance ministry official, who declined to be identified before an announcement, said in New Delhi today.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose eight basis points to 7.88 percent.

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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