India’s Bond Yields Hold Near One-Week High as Rates May Rise

India’s 10-year bond yields held near a one-week high on speculation the central bank will increase interest rates at a policy review on July 26.

The Reserve Bank of India will raise the repurchase rate by 25 basis points to 7.75 percent, according to 19 of 21 economists surveyed by Bloomberg. Two forecast no change. The rate was last boosted by a similar amount on June 16 to lower an inflation rate that’s exceeded 8 percent for 18 months.

“The high-inflationary environment is not going away anytime soon,” Leif Eskesen, Singapore-based chief economist at HSBC Holdings Plc, wrote in a research report published today. “The RBI is still likely to consider inflation as the dominant concern and continue to tighten.”

The yield on the 7.8 percent government debt due April 2021 was little changed at 8.27 percent at the 5 p.m. close in Mumbai, according to central bank data. It climbed to 8.28 percent yesterday, the highest level since July 13.

The central bank may raise its benchmark rate to 8.25 percent by March, according to Eskesen. The monetary authority has boosted borrowing costs 10 times since the start of 2010.

India’s wholesale-price index rose 9.44 percent in June from a year earlier after climbing 9.06 percent the previous month, according to government data. The pace of price gains may slow to at least 7 percent by March, Finance Minister Pranab Mukherjee said in New Delhi today.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell three basis points, or 0.03 percentage point, to 7.92 percent.

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

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net