India’s Bonds Decline as RBI May Refrain From Reducing Rates

India’s bonds fell for the seventh time in eight days on speculation faster inflation will deter the central bank from reducing interest rates.

Nineteen of 22 economists in a Bloomberg survey predict the Reserve Bank of India will hold the repurchase rate at 8.5 percent at a policy review today. The benchmark wholesale-price index rose 6.95 percent from a year earlier, after climbing 6.55 percent in January, the commerce ministry said yesterday. Government data released Feb. 29 showed India’s economy grew the least in 11 quarters in the three months ended Dec. 31, fueling speculation the central bank will lower borrowing costs.

“Inflation continues to reign higher and so the RBI may hold rates” for now, said Upasna Bhardwaj, a Mumbai-based economist at ING Vysya Bank Ltd. (VYSB)

The yield on the 8.79 percent bonds due November 2021 rose two basis points, or 0.02 percentage point, to 8.30 percent as of 10:17 a.m. in Mumbai, according to the central bank’s trading system.

The Reserve Bank boosted the repo rate 13 times in the last two years to cool inflation. The rate was last increased by 25 basis points in October.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, was little changed at 8.05 percent, data compiled by Bloomberg show. The rate has dropped 14 basis points after the Reserve Bank cut the reserve requirements for banks by 75 basis points to 4.75 percent of deposits with effect from March 10.

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

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