India’s 10-Year Bonds Decline a Second Day on Inflation Concern
India’s 10-year bonds dropped for a second day on speculation the central bank will boost borrowing costs next week for a sixth time this year to slow increases in food prices.
An index measuring wholesale prices of farm products including rice and wheat rose 10.05 percent in the week ended Aug. 20 from a year earlier, the fastest pace in four months, a government report showed on Sept. 1. India’s relatively fast economic growth may encourage the Reserve Bank of India to lift its repurchase rate by 25 basis points to 8.25 percent at a meeting on Sept. 16, said J. Moses Harding, an executive vice president at IndusInd Bank Ltd. (IIB)
“Inflation concerns persist and growth is also robust,” Mumbai-based Harding said. “Domestic factors are still bearish for bonds although some expect the central bank to temper its hawkish language due to global headwinds.”
The yield on the 7.8 percent bonds due April 2021 rose one basis point, or 0.01 percentage point, to 8.31 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. The rate has increased 39 basis points this year, the most after Vietnam among Asia’s local-currency debt markets, according to data compiled by Bloomberg.
Volatility in global commodity prices continues to be a “threat to price stability” in India, Deepak Mohanty, an executive director at the RBI, said last week. Asia’s third- largest economy grew 7.7 percent in the three months ended June 30, beating economists’ forecast for a 7.6 percent increase in a Bloomberg News survey.
The government is committed to moderating inflation rate, Finance Minister Pranab Mukherjee said today.
The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed at 7.63 percent, according to data compiled by Bloomberg.
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