India’s Bonds Gain on Speculation RBI Will Halt Rate Increases

India’s bonds rose on speculation the slowing economy will prompt the central bank to stop raising borrowing costs.

The Reserve Bank of India, which has boosted the repurchase rate by 375 basis points since the start of 2010, will keep the rate unchanged at 8.50 percent tomorrow, according to all 13 economists in a Bloomberg survey. Industrial output fell 5.1 percent in October from a year earlier after a revised 2 percent gain in September, official data showed this week. That’s the first decline since 2009.

“The central bank is likely to keep rates unchanged tomorrow,” said Krishnamurthy Harihar, treasurer at FirstRand Ltd. in Mumbai. ”But the RBI can’t afford to cut rates yet as inflation is still elevated.”

The yield on the 8.79 percent bonds due November 2021 fell four basis points, or 0.04 percentage point, to 8.46 percent as of 10 a.m. in Mumbai, according to the central bank’s trading system.

Inflation has stayed above 9 percent for 12 months. The benchmark wholesale-price index rose 9.11 percent in November from a year earlier, the commerce ministry said in a statement yesterday. The monetary authority last lifted the repo rate by 25 basis points on Oct. 25.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell six basis points to 7.74 percent, according to data compiled by Bloomberg.

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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